HR7886-119

What This Bill Does

The Failed Bank Executives Accountability and Consequences Act authorizes the FDIC, while acting as conservator or receiver for an insured depository institution, to recover compensation from a current or former executive officer or director whose negligence caused financial loss to the institution. Recovery normally reaches compensation received during the two years before the FDIC's appointment. When fraud is involved, no time limit applies.

FDIC regulations must define compensation broadly to include salary, bonuses, incentives, benefits, severance, deferred compensation, golden-parachute benefits, and profits from sales of the institution's or an affiliate's securities. The bill applies the same negligence-based two-year recovery and unlimited fraud period when the FDIC is receiver for a covered financial company under Dodd-Frank.

An appropriate federal banking agency may initiate an order barring an institution-affiliated party from any further participation in an insured depository institution when the agency determines that the party negligently caused financial loss to an institution that failed. Existing notice and adjudication procedures continue to apply.

An executive officer or director who negligently caused financial loss to a failed insured institution may receive a civil penalty up to $25,000 for each day the conduct occurred. Knowing or reckless causation triggers the existing higher applicable maximum for each day. These penalties are not automatic: the agency must establish the specified conduct, causation, loss, and failure conditions.

A nonbinding sense of Congress urges regulators and law enforcement to use existing tools against leaders of Silicon Valley Bank, Signature Bank, First Republic Bank, and other failed banks, and urges six regulators to finish Dodd-Frank section 956 incentive-compensation rules with robust clawbacks. A savings clause preserves all preexisting enforcement authority. The bill creates no private lawsuit, direct depositor payment, automatic ban, or recovery based merely on holding an executive title.

Who Benefits and How

The FDIC and other banking agencies gain stronger recovery, removal, prohibition, and penalty tools. The Deposit Insurance Fund and receivership estates may recoup compensation, indirectly protecting insured depositors, creditors, and taxpayers. Prudent bank leaders may gain from stronger deterrence of reckless competitors.

Who Bears the Burden and How

Executives, directors, and institution-affiliated parties face compensation recovery, career exclusion, and daily fines after qualifying misconduct. Former leaders remain exposed, and fraud-based clawbacks have no time limit. Regulators must investigate causation, conduct proceedings, write rules, calculate compensation, and litigate challenges. Directors-and-officers insurers and financial institutions may face higher defense and coverage costs.

Key Provisions

• Authorizes FDIC compensation clawbacks.
• Applies a negligence-and-loss causation standard.
• Reaches current and former executives.
• Reaches current and former directors.
• Covers compensation from the preceding two years.
• Removes the time limit for fraud.
• Defines compensation broadly by regulation.
• Extends clawbacks to covered financial companies.
• Authorizes industry prohibition after negligent loss.
• Requires an insured institution to have failed for the new prohibition.
• Sets negligence fines up to $25,000 per day.
• Applies higher daily fines to knowing or reckless conduct.
• Urges completion of section 956 rules.
• Preserves preexisting enforcement authority.
• Creates no private right of action.
• Provides no automatic depositor payment.
• Requires agency findings rather than title-based liability.