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Waters pushes for greater federal clawback powers

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Legislation
Wednesday, March 22, 2023

Rep. Maxine Waters (D-Calif.) proposed legislation to increase the federal government’s clawback authority following the collapse of three U.S. banks. Waters also sent a letter to bank regulators – including the Federal Reserve, the Federal Deposit Insurance Corp., and Securities and Exchange Commission – informing them of the proposed legislation and requesting they begin fully exercising the authorities already in place.

In her letter, Waters expressed concern about the role executives at Silicon Valley Bank and Signature Bank played in their banks’ failures, as well as a deeper concern for the rumors that some executives may have monetarily benefitted from the collapse.

“I commend the Biden administration’s new proposals to enhance executive accountability, including with respect to clawbacks and penalties, in response to these bank failures,” Waters wrote. “I look forward to working closely with them to develop and enact legislation to advance these critical reforms, as well as other legislation that is needed to better protect depositors and strengthen the safety and soundness of our banking system.”

Executive compensation and other corporate practices that encouraged “short-sighted and high-risk corporate behavior” and corporate mismanagement were at the heart of the 2008 financial crisis, Waters wrote.  Following the 2008 crisis, both Congress and federal regulators enacted laws and regulations in an effort to ensure those types of practices would not pose significant risk to the safety and soundness of individual financial institutions, the health of the broader financial system, and the economy at large.

A key part of this response was the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Waters criticized the regulators for having failed to implement Section 956 regarding incentive-based compensation arrangements.

“Your agencies must finish that long overdue rulemaking this year and ensure it also includes a robust clawback requirement and consider taking further measures so that executives are not rewarded with big bonuses if their bank is mismanaged or fails,” Waters wrote.

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