House Democrats release wave of bank reform bills

Key Points
  • House Democrats, led by Rep. Maxine Waters, will introduce 11 bills to regulate the financial sector in the wake of several banking collapses.
  • The bills are specifically focused on preventing the kind of actions that led up to and followed the failures of Silicon Valley Bank and Signature Bank.
  • Republicans have also expressed an openness to compromise on banking legislation.
Rep. Maxine Waters, a Democrat from California and ranking member of the House Financial Services Committee, during a hearing on China's economic threats, in Washington, D.C., Feb. 7, 2023.
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WASHINGTON — House Democrats on Wednesday will release a slate of reform bills in response to the recent bank failures that triggered the worst crisis for the sector since 2008.

Members of the House Financial Services Committee, led by ranking member Rep. Maxine Waters, D-Calif., are seeking an expansion to federal regulatory authorities and more oversight for bank executives, including clawbacks on compensation, fines and the closure of loopholes that allowed some banks to escape standards established under the 2010 Dodd-Frank Act.

The committee has closely scrutinized the actions of the Treasury Department, the Federal Deposit Insurance Corporation, or FDIC, and other federal regulators along with executives of Silicon Valley Bank and Signature Bank leading up to and in the aftermath of the banks' collapse.

Waters urged committee Republicans to follow the lead of the Senate Banking Committee and work with Democrats to advance bipartisan legislation to protect the economy from future harm.

"The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank make clear that it is past time for legislation aimed at strengthening the safety and soundness of our banking system and enhancing bank executive accountability," she said.

Here are the bills to be considered:

Failed Bank Executives Accountability and Consequences Act: This bill would expand regulatory authority on compensation clawbacks, fines and banning executives who contribute to a bank's failure from future work in the industry. President Joe Biden called for these actions shortly after the FDIC took over SVB and Signature Bank in March. The bill is cosponsored by Waters and fellow Democratic Reps. Nydia Velazquez, of New York; Brad Sherman and Juan Vargas, both of California; David Scott, of Georgia; Al Green and Sylvia Garcia of Texas; Emanuel Cleaver, of Missouri; Joyce Beatty and Steven Horsford, both of Ohio; and Rashida Tlaib, of Michigan. Some Republicans have expressed support for this act, which is similar to the bipartisan bill the Senate Banking Committee is considering.

Incentivizing Safe and Sound Banking Act: This measure would expand regulators' authority to prohibit stock sales for executives when banks are issued cease-and-desist orders for violating the law. It would also automatically restrict stock sales by senior executives of banks that receive poor exam ratings or are out of compliance with supervisory citations. The bill would have prevented SVB bank executives from cashing out after repeated warnings by regulators, according to Democrats. It is cosponsored by Waters, Velazquez, Sherman, Green, Cleaver, Beatty, Horsford and Tlaib.

Closing the Enhanced Prudential Standards Loophole Act: This will aim to close loopholes surrounding the Dodd-Frank Act's enhanced prudential standards for banks that do not have a bank holding company. Neither Signature Bank nor SVB had a bank holding company before they collapsed. The bill would ensure that large banks with a size, complexity and risk equal to that of big banks with holding companies will be subject to similar enhanced capital, liquidity, stress testing, resolution planning and other related requirements. It is cosponsored by Waters, Velazquez, Sherman, Green, Cleaver, Beatty, Vargas, Garcia and Tlaib.

H.R. 4204, Shielding Community Banks from Systemic Risk Assessments Act: This measure would permanently exempt banks with less than $5 billion in total assets from special assessments the FDIC collects when a systemic risk exception is triggered, which was done to protect depositors at Silicon Valley Bank and Signature Bank. The FDIC would be allowed to set a higher threshold while requiring a minimal impact on banks with between $5 billion and $50 billion in total assets. It is sponsored by Green.

H.R. 4062, Chief Risk Officer Enforcement and Accountability Act: This measure would have federal regulators require large banks to have a chief risk officer. Banks would also have to notify federal and state regulators of a CRO vacancy within 24 hours and provide a hiring plan within seven days. After 60 days, if the CRO position remains vacant, the bank must notify the public and be subject to an automatic cap on asset growth until the job is filled. The bill is cosponsored by Sherman, Green, and fellow Democratic Reps. Sean Casten, of Illinois; Josh Gottheimer, of New Jersey; Ritchie Torres, of New York; and Wiley Nickel, of North Carolina.

H.R. 3914, Failing Bank Acquisition Fairness Act: This bill would have the FDIC only consider bids from megabanks with more than 10% of total deposits if no other institutions meet the least-cost test. This would ensure smaller banks have a chance to purchase failed banks, according to Democrats. It is sponsored by Rep. Stephen Lynch, D-Mass.

H.R. 3992, Effective Bank Regulation Act: This legislation would require regulators to expand stress testing requirements. Instead of two stress test scenarios, the bill would require five. It would also ensure that the Federal Reserve does stress tests for situations when interest rates are rising or falling. It is sponsored by Sherman.

H.R. 4116, Systemic Risk Authority Transparency Act: This bill would require regulators and the watchdog Government Accountability Office, or GAO, to produce the same kind of post-failure reports that the Federal Reserve, FDIC and GAO did after Silicon Valley Bank's and Signature Bank's failure. Initial reports would be required within 60 days and comprehensive reports within 180 days. It would be applicable to any use of the systemic risk exception of the FDIC's least cost resolution test. The bill is sponsored by Green.

H.R. 4200, Fostering Accountability in Remuneration Fund Act of 2023, or FAIR Fund Act: The legislation would require big financial institutions to cover fines incurred after a failure and/or executive conduct through a deferred compensation pool that would be funded with a portion of senior executive compensation. The pool would get paid out between two and eight years, depending on the size of the institution. The bill is sponsored by Tlaib.

Stopping Bonuses for Unsafe and Unsound Banking Act: This measure would freeze bonuses for executives of any large bank that doesn't submit an acceptable remediation plan for what's known as a Matter Requiring Immediate Attention, or MRIA, or a similar citation from bank supervisors by a regulator-set deadline. It is sponsored by Brittany Pettersen, D-Colo.

Bank Safety Act: Large banks would be prevented from opting out of the requirement to recognize Accumulated Other Comprehensive Income, or AOCI, in regulatory capital under this bill. AOCI reflects the kind of unrealized losses in SVB's securities portfolio. It is sponsored by Sherman.

Correction: This story was updated to reflect that the bills are being released Wednesday.