Senate bill would toughen compensation clawback rules for failed banks

Senate Banking Committee leaders on Thursday introduced a bipartisan bill that would strengthen actions regulators could take to clawback compensation from executives at banks with more than $10 billion in assets whose mismanagement—ranging from “grossly negligent, reckless, or willful conduct” to not implementing proper controls—contributed to the institution’s failure. The bill by Chairman Sherrod Brown (D-Ohio) and Ranking Member Tim Scott (R-S.C.) is separate from a much broader compensation clawback bill recently introduced by committee member Sen. Elizabeth Warren (D-Mass.), which also has bipartisan cosponsors. Among other things, the Brown-Scott bill would require banks to adopt corporate governance and accountability standards that promote responsible management.

The Recovering Executive Compensation Obtained from Unaccountable Practices, or RECOUP, Act would give the FDIC the authority to clawback certain compensation from senior executives at failed banks, including profits made by selling the bank’s stock, received two years before the failure. The legislation would also define “senior executive” to include a bank’s senior leadership and inside directors. It would not apply to employees who have been at the bank for less than a year or whose conduct did not contribute to the failure.

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