House Democrats Propose Sweeping Bank Reform Bills in Response to Recent Failures

In the wake of the recent banking crises involving Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank, House Democrats are gearing up to introduce a series of reform bills aimed at strengthening the banking system and holding executives accountable.

Led by Rep. Maxine Waters, the House Financial Services Committee has conducted extensive investigations into the failures and identified critical loopholes in existing regulations. With the support of some Republicans, the proposed legislation seeks to enhance oversight, impose penalties, and close gaps that allow banks to evade the standards established by the Dodd-Frank Act.

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Failed Bank Executives Accountability and Consequences Act: This bill empowers regulators to enforce compensation clawbacks and fines on executives responsible for bank failures, while also prohibiting them from working in the industry. The legislation has garnered bipartisan support and is endorsed by Waters and other Democrats who have witnessed the need for stronger executive accountability.

Incentivizing Safe and Sound Banking Act: Addressing the issue of CEO stock sales during times of regulatory non-compliance, this bill grants regulators the authority to limit stock sales by senior executives in banks with low exam scores or supervisory citations.

Democrats argue that this measure would have prevented SVB executives from cashing out despite repeated warnings from regulators.

Closing the Enhanced Prudential Standards Loophole Act: To prevent banks without bank holding companies from evading critical regulations, this bill closes the gaps in the Dodd-Frank Act. It requires large banks with similar size, complexity, and risk to major banks with holding companies to meet equivalent standards, including capital, liquidity, stress testing, and resolution plans.

Community Bank Systemic Risk Assessment Protection Act: In order to protect depositors of smaller banks like SVB and Signature Bank, this resolution permanently exempts banks with assets under $5 billion from FDIC systemic risk exemption special assessments. The threshold for exemption may be adjusted to accommodate banks with assets between $5 billion and $50 billion.

Apart from addressing the failures directly, the proposed bills also focus on strengthening oversight and transparency within the banking system. The Chief Risk Officer Enforcement and Accountability Act mandates the appointment of a chief risk officer for large banks, ensuring prompt reporting of vacancies and limiting asset growth until the position is filled.
The Systemic Risk Authority Transparency Act requires regulators to produce post-failure reports, promoting accountability and learning from past mistakes.

As the bills make their way through the legislative process, their potential impact on the banking sector and the wider financial landscape will be closely watched, as stakeholders seek a stronger and more resilient banking system that safeguards both consumers and the economy at large.