No one doubts that poor management was the reason these banks failed in March and were bailed out by the Federal Deposit Insurance Corporation. There have undoubtedly been some supervisory missteps, but I am very skeptical that it was due to the San Francisco regulator’s obsession with climate change. Or, as several Republican senators have argued, diversity and inclusion. Republican Sen. Bill Haggerty even gave Becker an opportunity to deflect accusations in this direction. But Becker said more than 95% of his discussions with supervisors were related to bank fundamental risk, and he doesn’t recall a single face-to-face conversation about climate risk.
Still, the committee found Becker somewhere between “stupid to the bone,” as Republican John Kennedy put it, and greedily irresponsible. Senators with different views, such as Republican J.D. Vance and Democrat Elizabeth Warren, have weighed in on the compensation Mr. Becker received, the fact that he sold his shares weeks before the SVB bankruptcy, and the payment on the very day of the bankruptcy. I was furious at the way the cash bonus was given. Vance joked that he was going to screw up the bank for a much smaller amount, but Warren asked Becker and Shea if they were willing to return the winnings to the FDIC. rice field. Becker said he had promised to cooperate with the FDIC’s investigation. Shay answered emphatically, “No.”
Becker has made $38 million, or nearly $12 million in cash, over the past four years, according to SVB’s annual proxy statement. It may not be Goldman Sachs or JP Morgan CEO money, but it’s a lot. Federal Reserve investigation into SVB bankruptcy finds SVB executive bonuses disregard long-term performance and supervisory issues, encouraging excessive risk-taking to maximize short-term gains was judged.
The FDIC has authority to recoup salaries as compensation to the Deposit Insurance Fund, which lost about $20 billion in SVB and Signature. But the FDIC can only demand funds from the past two years, and its chairman, Martin Gruenberg, told the same commission at another hearing last week that it needs to find out the actual wrongdoing. said.
Senators are not satisfied. Twenty years later, they’re still waiting for a substantial clawback rule. The Enron and Worldcom bombings provided the first such provision in the Sarbanes-Oxley Act. After the 2008 financial crisis, the Dodd-Frank Act called for stronger clawback rules, and the Securities and Exchange Commission finally finalized the clawback rules last year, but they have not yet taken effect. U.S. and European banks have paid billions in fines since 2008, but none of the executives, including the CEOs of Lehman Brothers and Bear Stearns, have been forced to return their salaries.
In most cases, businesses are instructed to create their own policies, and these policies typically require fraud or conduct with accounting corrections. These apply only to relatively recent salaries and are seldom effective, but there have been notable exceptions in recent years.
Goldman Sachs Group has asked current and former executives to return $174 million after paying a $3 billion settlement in 2020 over their role in the 1MDB Malaysia corruption scandal. Not everyone paid the full amount, and former executive Gary Cohn ended up donating $10 million to charity instead. In 2021, McDonald’s sued former CEO Steve Easterbrook, who was fired for having a sexual relationship with one of his employees, seeking $105 million in cash and stock compensation. and won the lawsuit.
These are still exceptions. More bipartisan efforts are now underway since President Joe Biden called on Congress to increase executive accountability through financial fines in March. Leaders of the House Financial Services Committee sent a joint letter to the FDIC, SEC, and Federal Reserve to maximize their existing powers and strengthen the clawback policy envisioned by Dodd-Frank policy. requested completion of the rules.
Senator Warren, along with Republican Senator Josh Hawley, has proposed a bipartisan bill called the Failed Bank Officers Clawback Act that would expand the FDIC’s powers to collect executive compensation for the five years before the bank failed. submitted.
Many would see a natural justification for such a policy. Renowned investor Warren Buffett recently complained that bank executives face too little impact when things go wrong. But that doesn’t make such laws simple. Money that has been paid for so long has been spent in many ways, including taxes. We also need some way of determining the difference between willful mismanagement, negligence, and sheer bad luck, and how each should be punished.
A much better solution would be to make executive compensation, especially bonuses, inaccessible long after the awards have been granted. Share options should vest later and perhaps the shares owned should be in trust. As suggested in this article in his 2021 Harvard His Business his review, corporate executives should also not be allowed to sell stocks or exercise options for up to a year after leaving office. I can’t. It’s much easier to withhold a full undelivered paycheck than to chase someone’s paycheck.
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This column does not necessarily reflect the opinions of the editorial board or Bloomberg LP and its owners.
Paul J. Davis is a Bloomberg Opinion columnist covering banking and finance. He previously worked as a reporter for the Wall Street Journal and the Financial Times.
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