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House Democrats to Release Slate of Reform Bills in Wake of Recent Bank Failures
House Democrats, led by ranking member Rep. Maxine Waters, D-Calif., are set to release a series of reform bills aimed at expanding federal regulatory authorities and increasing oversight for bank executives in the aftermath of the worst crisis for the sector since 2008. Here are the bills to be considered:
Failed Bank Executives Accountability and Consequences Act
This bill, cosponsored by Waters and several fellow Democratic Reps, would give regulatory authorities the power to impose compensation clawbacks, fines, and bans on executives who contribute to a bank's failure. President Joe Biden has publicly supported this act shortly after the Federal Deposit Insurance Corporation (FDIC) took over Silicon Valley Bank and Signature Bank in March. The bill is similar to a bipartisan bill being considered by the Senate Banking Committee, which has garnered support from some Republicans.
Incentivizing Safe and Sound Banking Act
This bill would expand regulators' powers on prohibiting CEOs to sell their stocks in banks being issued cease-and-desist orders for violating the law. It will automatically restrict stock sales for senior executives in banks that receive poor exam ratings or are out of compliance with supervisory citations. Democrats say that this measure could have prevented Silicon Valley Bank executives from cashing out after regulators' warnings. It is cosponsored by Waters and several fellow Democratic Reps.
Closing the Enhanced Prudential Standards Loophole Act
This bill would aim to close loopholes around the Dodd-Frank Act's enhanced prudential standards for banks without a bank holding company. By doing so, it will ensure that large banks with a size, complexity, and risk equal to that of big banks with holding companies will be subject to similar enhanced capital, liquidity, stress testing, resolution planning, and other related requirements. The bill is cosponsored by Waters, several fellow Democratic Reps, as well as a Republican representative. Neither Signature Bank nor Silicon Valley Bank had a bank holding company before they collapsed.
Bills Sponsored by Individual Representatives
The remaining bills, each proposed by individual Democratic representatives, are:
H.R. 4204, Shielding Community Banks from Systemic Risk Assessments Act
This measure would permanently exempt banks with less than $5 billion in total assets from special assessments that the FDIC collects when a systemic risk exception is triggered. It is sponsored by Rep. Al Green of Texas.
H.R. 4062, Chief Risk Officer Enforcement and Accountability Act
This measure would require large banks to have a chief risk officer. Banks would also have to notify federal and state regulators of a CRO vacancy within 24 hours and provide a hiring plan within seven days. It is cosponsored by several fellow Democratic representatives.
H.R. 3914, Failing Bank Acquisition Fairness Act
This bill would require the FDIC only to consider bids from megabanks with more than 10% of total deposits if no other institutions meet the least-cost test. This would ensure smaller banks have a chance to purchase failed banks, according to Democrats. It is sponsored by Rep. Stephen Lynch of Massachusetts.
H.R. 3992, Effective Bank Regulation Act
This legislation would require regulators to expand stress testing requirements. Instead of two stress test scenarios, the bill would require five. It is sponsored by Rep. Brad Sherman of California.
H.R. 4116, Systemic Risk Authority Transparency Act
This bill would require regulators and the watchdog Government Accountability Office to produce the same kind of post-failure reports that the Federal Reserve, FDIC, and GAO did after the failure of Signature Bank and Silicon Valley Bank. It is sponsored by Rep. Al Green of Texas.
H.R. 4200, Fostering Accountability in Remuneration Fund Act of 2023 or FAIR Fund Act
The bill would require big financial institutions to cover fines incurred after a failure and/or executive conduct through a deferred compensation pool. The pool would get paid out between two and eight years, depending on the size of the institution. It is sponsored by Rep. Rashida Tlaib of Michigan.
Stopping Bonuses for Unsafe and Unsound Banking Act
This measure would freeze bonuses for executives of any large bank that doesn't submit an acceptable remediation plan for what's known as a Matter Requiring Immediate Attention, or MRIA, or a similar citation from bank supervisors by a regulator-set deadline. It is sponsored by Brittany Pettersen of Colorado.
Bank Safety Act
This bill would prevent large banks from opting out of the requirement to recognize Accumulated Other Comprehensive Income in regulatory capital. It is sponsored by Rep. Brad Sherman of California.
The House Democrats' reform bills have been proposed in the aftermath of the worst crisis for the banking sector since 2008. While these bills specifically target large banks and their executives, small businesses can also benefit from the increased oversight, accountability, and transparency these bills provide. Small businesses may not have the influence or resources to challenge or negotiate with large banks, making them susceptible to unfair practices. By increasing oversight of large banks, small businesses are protected from potential predatory behavior. Additionally, small businesses depend on community banks, which may benefit from the reform bill HR 4204, which permanently exempts banks with less than $5 billion in total assets from the FDIC special assessments. By shielding community banks from systemic risk assessments, small businesses can continue to receive funding from these banks. Ultimately, the reform bills' goal is to create a banking system that prioritizes safety and soundness. Such an environment is essential for small businesses as they rely on banks to stay financially healthy and to support their growth.