Opinion | A bipartisan bill to seize CEO pay would discourage future banking crises

The bill — dubbed the Recoup Act (short for Recovering Executive Compensation from Unaccountable Practices) — passed 21-2 out of the Senate Banking Committee on Wednesday, a strong show of bipartisan support that caused Republicans in the GOP-controlled House to indicate they would consider it, too. Pushed by Sens. Sherrod Brown (D-Ohio) and Tim Scott (R-S.C.), the legislation would enable the Federal Deposit Insurance Corp. to strip bonuses and stock compensation that executives took in the two years before a bank’s failure and impose on them up a fine of up to $3 million.

The Post’s View: The bank crisis is not over

The penalties would only apply to a failed bank’s senior executives. Leaders at community banks with less than $10 billion in assets would not be subject to the clawbacks. Very few executives are likely to face them. But, had the policy been in place over the past year, it could have added a measure of accountability to the FDIC’s rescue of Silicon Valley Bank, Signature Bank and First Republic Bank, each of which had more than $100 billion in assets when it went down. It also might have encouraged executives to think more carefully about the risks they took with their banks’ balance sheets.

Silicon Valley Bank, the first to fail, took excessive risks. It had an unusually high number of uninsured depositors, and it was slow to react to the fact that its assets had fallen substantially in value as the Federal Reserve hiked interest rates. SVB executives failed at Banking 101: ensuring there are enough assets to cover liabilities. SVB collapsed. The FDIC took it over and had to provide $20 billion from a government deposit insurance fund to rescue all depositors. SVB chief executive Greg Becker had lobbied Congress for years to loosen regulations on midsize banks like his. He also suspiciously sold more than $3.5 million in SVB stock shortly before the collapse. Yet he has faced few consequences beyond losing his job. The Recoup Act seeks to change that.

This bill wouldn’t solve all the problems this spring’s banking crisis uncovered. Bank autopsies revealed that both executives and government authorities failed to do their jobs. Federal Reserve regulators were lethargic and negligent. Even when Fed supervisors did flag risk management pitfalls, they didn’t force change at the banks they oversaw.

But Chair Jerome H. Powell and other senior Fed leaders are in the midst of overhauling their processes, especially for midsize banks that have received too much leeway in recent years. Passing the Recoup Act would send a signal to bank leaders that recklessness will have consequences.