Politics

Tim Scott Part Of Bipartisan Effort To Water Down Penalties On Bad Bankers

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Republican Sen. Tim Scott has joined forces with Democratic Sen. Sherrod Brown on a new bill that would penalize executives who oversaw failed banks, placing it at odds with more stringent bipartisan legislation proposed by other lawmakers.

Democrat Sen. Elizabeth Warren and Republican lawmakers recently proposed similar legislation that would not only punish executives, but also directors and controlling shareholders, which has garnered support from almost half of the members of the Senate Banking Committee. Scott, ranking member on the committee, and Brown, chairman of the committee, unveiled their bill Thursday after a series of bank failures, beginning with the collapse of Silicon Valley Bank, that stoked national fears of a widespread banking crisis.

Both bills would give power to regulators to take back compensation from top executives in the event of a bank failure, putting the blame on the bank leadership, according to the bills. Regulators would be able to impose fines in order to confiscate various forms of compensation like bonuses and stock sell-offs and bar executives from working further in the industry.

Yet, Scott and Brown’s bill differs from Warren’s legislation in that it would only extend back two years instead of three to recoup compensation, would not include the confiscation of salaries received by bank executives and would not apply to all directors and controlling shareholders. A spokesperson for the ranking member argues that Scott’s bill leads to a more tailored approach that will limit the reach to the bank executives that are responsible, according to statements given to the Daily Caller News Foundation.

In regards to the two-year vs three-year difference in the bills, the spokesperson argued that two years is a reasonable deterrent, close to the time of failure and not so punitive as to have a concern of brain drain so that good executives are discouraged from joining banks. The spokesperson also asserted that CEOs receive most of their income from stocks and bonuses, which the bill does target.

The Scott bill would also give discretion to regulators, enabling them to fine executives for compensation but not requiring them to.

“The recent bank failures didn’t happen in a vacuum – the banks’ executives failed to manage their risk, regulators failed to exercise their supervisory responsibilities, and the Biden administration failed to stop spending, which led to rising interest rates,” Scott said in a statement unveiling the legislation. “I look forward to continuing the hard work of demanding more answers from the Biden Administration and ensuring our nation never experiences these types of preventable failures again.”

Republican Sen. Josh Hawley, a co-sponsor with Warren on the earlier bill, said, “I’m just really worried that that’s going to get watered down,” in response to the new legislation, according to Politico.

You take out a loan. You pay it back.

We’ve got to incentivize sound financial practices in America. pic.twitter.com/ZBy5idqLX0

— Tim Scott (@SenatorTimScott) June 14, 2023

The string of failures began with SVB’s collapse in March after panicked depositors pulled their money, causing a bank run that plunged the bank’s stock by 60%.

Other banks, like Signature Bank and First Republic Bank, failed shortly after SVB. The federal government spent $13 billion to take over and sell First Republic Bank to JPMorgan and Chase in March, according to a press release from the Federal Deposit Insurance Corporation.

When reached for comment, Scott’s spokesperson referred the DCNF to the senator’s previous statement on the bill, which emphasizes holding bankers and the Biden administration accountable.