WASHINGTON – House Democrats are set to release a series of reform bills Wednesday in response to recent bank failures that have sparked the worst crisis for the sector since 2008.
Members of the House Financial Services Committee, led by senior Rep. Maxine Waters, D-Calif., are calling for expansion to include federal regulators and more scrutiny for bank managers, including recoveries on compensation, fines and closing loopholes that have allowed some banks to bypass the im standards set by the Dodd-Frank Act of 2010.
The committee closely examined the actions of the Treasury Department, the Federal Deposit Insurance Corporation (FDIC) and other federal regulators, as well as executives at Silicon Valley Bank and Signature Bank, before and after the banking collapses.
Waters urged Republicans on the committee to follow the lead of the Senate Banking Committee and work with Democrats to push bipartisan legislation to protect the economy from future damage.
“The failures of Silicon Valley Bank, Signature Bank and First Republic Bank make it clear that it is high time we enacted legislation aimed at strengthening the safety and soundness of our banking system and increasing the accountability of bank managers,” she said.
Here are the bills to consider:
Accountability Act and Consequences of Failed Bank Managers: This bill would expand regulatory powers to claw back damages, fines, and ban executives who contribute to a bank’s failure from future work in the industry. President Joe Biden called for these actions shortly after the FDIC’s acquisition of SVB and Signature Bank in March. The bill is supported by Waters and his fellow Democratic representative Nydia Velazquez from New York; Brad Sherman and Juan Vargas, both from California; David Scott of Georgia; Al Green and Sylvia Garcia from Texas; Emanuel Cleaver of Missouri; Joyce Beatty and Steven Horsford, both from Ohio; and Rashida Tlaib of Michigan. Some Republicans have expressed support for this bill, which is similar to the bipartisan bill the Senate Banking Committee is considering.
Safe and Sound Banking Incentives Act: This measure would expand regulators’ powers to ban the sale of stock to executives when banks are issued cease and desist orders for violating the law. It would also automatically restrict the sale of shares by bank executives who receive poor audit scores or fail to comply with regulatory requirements. Democrats say the bill would have barred SVB bank executives from disbursing money after repeated warnings from regulators. It is co-sponsored by Waters, Velazquez, Sherman, Green, Cleaver, Beatty, Horsford and Tlaib.
Closure of the Enhanced Prudential Standards Loophole Act: This is intended to close loopholes related to the enhanced prudential standards of the Dodd-Frank Act for banks that do not have a bank holding company. Neither Signature Bank nor SVB had a bank holding before their collapse. The bill would ensure that large banks, which are similar in size, complexity and risk to large banks with holding companies, would be subject to similar increased capital, liquidity, stress testing, resolution planning and other related requirements. It is co-sponsored by Waters, Velazquez, Sherman, Green, Cleaver, Beatty, Vargas, Garcia and Tlaib.
HR 4204, Protection of Community Banks from Systemic Risk Assessments Act: This measure would permanently exempt banks with total assets of less than $5 billion from the special assessments the FDIC collects when a systemic risk exemption implemented to protect depositors at Silicon Valley Bank and Signature Bank is triggered. The FDIC would be permitted to set a higher threshold, with minimal impact on banks with total assets between $5 billion and $50 billion. It is sponsored by Green.
HR 4062Chief Risk Officer Enforcement and Accountability Act: This measure would result in federal regulators requiring large banks to have a chief risk officer. Banks would also have to notify federal and state regulators of a vacant CRO position within 24 hours and provide a hiring plan within seven days. If the CRO position remains vacant after 60 days, the bank must notify the public and is subject to an automatic asset growth cap until the position is filled. The bill is supported by Sherman, Green and other Democrats: Sean Casten of Illinois; Josh Gottheimer from New Jersey; Ritchie Torres from New York; and Wiley Nickel of North Carolina.
HR 3914Failing Bank Acquisition Fairness Act: This bill would require the FDIC to consider offerings from megabanks with more than 10% of total deposits only if no other institutions meet the minimum cost test. This would ensure smaller banks have a chance to buy up failing banks, Democrats believe. It is sponsored by Rep. Stephen Lynch, D-Mass.
HR 3992Banking Regulation Act coming into effect: This legislation would require regulators to expand stress testing requirements. Instead of two stress test scenarios, the draft law provides for five. It would also ensure that the Federal Reserve conducts stress tests for situations where interest rates rise or fall. It is sponsored by Sherman.
HR 4116Systemic Risk Authority Transparency Act: This bill would require regulators and the Government Accountability Office (GAO) oversight body to produce the same post-failure reports that the Federal Reserve, FDIC and GAO did after the failures of Silicon Valley Bank and Signature Bank. Initial reports would be required within 60 days and full reports within 180 days. This would be applicable to any application of the FDIC’s systemic risk exception test to the least cost solution. The bill is sponsored by Green.
HR 4200Fostering Accountability in Remuneration Fund Act of 2023 or FAIR Fund Act: The legislation would require large financial institutions to fund fines resulting from executive omissions and/or conduct through a deferred compensation pool that would be funded from a portion of executive compensation. The pool would be paid out between two and eight years depending on the size of the institute. The bill is sponsored by Tlaib.
Law to discontinue bonuses for insecure and unsound banks: This measure would freeze executive bonuses at any major bank that fails to provide an acceptable recovery plan for a so-called “matter requiring immediate attention” (MRIA) or a similar subpoena from bank regulators by a deadline set by the regulator. It is sponsored by Brittany Pettersen, D-Colo.
Bank Security Act: This bill would prevent large banks from waiving the requirement to recognize accumulated other comprehensive income (AOCI) in regulatory capital. The AOCI reflects the nature of the unrealized losses in the SVB securities portfolio. It is sponsored by Sherman.
Correction: This story has been updated to reflect that the bills will be released on Wednesday.
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