(C) Common Dreams This story was originally published by Common Dreams and is unaltered. . . . . . . . . . . SVB, Signature Bank CEOs Dodge Pay Clawbacks as Future Cuts Loom [1] [] Date: 2023-05 Last year, Silicon Valley Bank CEO Greg Becker was paid nearly $10 million in total compensation while Signature Bank CEO Joe DePaolo received $8.6 million in total compensation. Their wallets, for now, are safe. The bank bosses fell through the cracks of federal rules for retracting executive pay, say some Washington officials who are pushing for changes. The Federal Deposit Insurance Corp. and Securities and Exchange Commission both have clawback authorities going back to the 2010 Dodd-Frank Act—enacted after the 2008 financial crisis—and through even earlier laws. But the agencies are unable to easily rescind pay from Silicon Valley Bank and Signature Bank leaders using their existing powers, which have no clear consequences for the banks’ managers. Sens. Elizabeth Warren (D-Mass.), Josh Hawley (R-Mo.) and other lawmakers introduced a measure (S. 1045) to update the Dodd-Frank clawback provisions, which Congress passed to help hold executives accountable for company problems. Creating clawback rules for failures like the Silicon Valley Bank and Signature Bank collapses is much easier now than it would have been before their demises, said Claire Hill, a University of Minnesota Law School professor who studies executive compensation. “Compensation issues are always very charged,” Hill said. “It’s always hard to move forward.” SEC Rules Signature Bank Corp. and Silicon Valley Bank’s parent company SVB Financial Group were subject to SEC clawback rules when they failed. But the agency’s new regulations—approved just last year—are useless against the banks’ executives. The SEC still needs the stock exchanges to incorporate the regulations into their listing standards for companies. The agency finally adopted the rules in October 2022, a dozen years after Dodd-Frank mandated them in response to public outrage over the pay packages of bank leaders and other corporate executives whose companies received crisis-era bailouts. The exchanges’ related standards must take effect by November. Republicans have long pushed back against SEC efforts to retract executive pay. The SEC first proposed clawback rules in 2015 during the Barack Obama administration without Republican support. Work on the regulations then stalled before a Democratic-led SEC sought new public feedback on them in 2021. But the final rules still failed to secure Republican backing, with SEC Commissioner Hester Peirce saying they’re unnecessarily rigid and will drive up costs for companies. The rules only will require executives to return their bonuses if their awards were based on errors in their companies’ financial statements. Neither bank in the past year made an accounting mistake large enough to require a formal correction, or restatement, of their financials, according to research firm Audit Analytics. The banks also didn’t appear to make any smaller revisions, which they can quietly tuck into their filings. A clawback for a restatement is a relatively easy case to make, Hill said. If an executive’s pay is based on something declared as true when it’s actually wrong, the official shouldn’t get the compensation, she said. Investor advocates have called more, however. Companies should report any discretionary executive pay they did or didn’t recover after finding errors with corporate environmental, social and governance data—as well as other mistakes that didn’t trigger financial restatements, but were tied to executive compensation, Public Citizen and As You Sow wrote in letters to the SEC in 2021. “The broader question of when there should be clawbacks, from whom there should be clawbacks, and how big they should be is more complex,” Hill said. FDIC Investigates While the SEC’s authority to reclaim executives’ pay applies to all public companies, the FDIC only has power over banks. It can, however, by itself claw back executive compensation—but only through a never-before-used regulatory process created by Dodd-Frank or a lengthy investigation after a bank fails, detailed in the Federal Deposit Insurance Act. Following a bank failure, the FDIC usually becomes the receiver, or controlling entity to facilitate liquidation of its assets and ensure deposits and loans still on its books get transferred to another bank. It also opens an investigation to analyze what happened and unearth possible misconduct. Upon conclusion of that investigation, the agency can reel back executives’ pay—but only if it establishes wrongdoing by C-suite employees. If the agency finds evidence of misconduct, it can impose a wide range of civil penalties or even prohibition orders that essentially ban officers and directors from the banking industry for a time or indefinitely. The SEC also can take similar actions if it determines company bosses broke agency rules against misleading investors or violated other regulations. But an FDIC probe can take years, Paul Kupiec a senior fellow at the American Enterprise Institute and former FDIC official said. “The FDIC has a lot of powers in a receivership if it can show management was basically stripping assets and things like that,” Kupiec said. FDIC Vice Chair Travis Hill confirmed the agency has begun an investigation into SVB and Signature Bank. “My understanding is those investigations are still in the early stages, but I would assume the FDIC would go through its normal process—in whatever authorities it has,” he said at an April 12 event hosted by the Bipartisan Policy Center. Shortcut The Dodd-Frank Act does give the FDIC direct authority to claw back executive pay in the case of a bank failure through a process known as orderly liquidation authority (OLA). But OLA wasn’t invoked during the chaotic weekend of March 11, when Silicon Valley Bank collapsed and subsequently, Signature Bank. Federal bank regulators likely discussed, but ultimately decided against using OLA because the mechanism was intended to be a last-resort option to keep a bank—and the entire US financial system—afloat, according to Matt Walker, a financial services attorney at Vorys in Columbus, Ohio. The preferred approach is to use the existing bankruptcy process for smaller banks. Although Silicon Valley Bank was very large at more than $200 billion in assets, it still didn’t quite reach the threshold OLA was intended for, Walker said. As a result, any clawback at this point depends upon the FDIC finishing its investigation or receiving broader authority from Congress. The Senate bill introduced in March would essentially serve as a shortcut to recover money from executives once a bank fails. Regulators wouldn’t have to invoke OLA, rely on the SEC’s financial-restatement trigger or wait for the end of an investigation. The bill also requires the FDIC to claw back all or part of the compensation executives received in the five years before a bank’s insolvency or FDIC-resolution. “Our bill would increase the ability of the regulators to claw back compensation and bonuses that were received while a bank was loading up on risks shortly before it collapsed,” Warren told Bloomberg Law in an interview. She supports the FDIC’s investigation, but said “Congress has a job to do to make it easier for FDIC to claw back after the executives blow up a bank.” Conservative Senate stalwarts Hawley and Mike Bran (R-Ind.) cosponsored the bill with Sens. Warren and Catherine Cortez Masto (D-Nev.), giving the bill bipartisan momentum. Sen. Sherrod Brown (D-Ohio) and chair of the Senate Banking Committee, said there are “several” measures in the works, but he’s working with Ranking Member Tim Scott (R-S.C.) to come to an agreement on a preferred bill. Brown told reporters a bipartisan package with Scott’s approval could include a range of topics like clawbacks, industry bans for failed bank executives or broader “management and ethics issues” covering banks that haven’t failed. As the effort winds its way through Congress, attention on executive pay for failed banks in the wake of Silicon Valley Bank and Signature Bank may not go away, Walker said. “It kind of depends if we have any other fallout from what happened with those two banks—or additional stress in the banking industry,” he said. “And if there is, then perhaps this will ultimately have some legs.” — With assistance from Nicola M. White. [END] --- [1] Url: https://news.bloomberglaw.com/esg/failed-bank-execs-dodge-pay-clawbacks-as-tougher-remedies-sought Published and (C) by Common Dreams Content appears here under this condition or license: Creative Commons CC BY-NC-ND 3.0.. via Magical.Fish Gopher News Feeds: gopher://magical.fish/1/feeds/news/commondreams/