Failed Bank Executives Accountability and Consequences Act
- Sponsor
- Rep. Waters, Maxine [D-CA-43]
- Committees
- Financial Services Committee (primary)
- Last action
- Mar 9, 2026
Bottom line
The "Failed Bank Executives Accountability and Consequences Act" aims to strengthen accountability for financial institution executives by expanding regulators' powers to recoup compensation, levy fines, and ban individuals responsible for institutional failures due to negligence.
What it actually does
This bill expands the authority of federal financial regulators, specifically the Federal Deposit Insurance Corporation (FDIC) and other appropriate federal banking agencies, to claw back executive compensation and impose civil money penalties on executives whose negligence causes financial loss to failed financial institutions. It also grants new authority to prohibit such executives from participating in the affairs of any insured depository institution.
Proponents argue
Proponents argue that this bill is crucial for holding executive officers and board members fully accountable for misconduct and negligence leading to bank failures, thereby protecting the financial system and taxpayers. They emphasize the need for robust clawback requirements and enhanced enforcement tools, especially in light of recent bank failures.
Opponents contend
Opponents might argue that expanding clawback and prohibition authorities based on negligence, rather than fraud or intentional misconduct, could create an overly punitive environment that discourages qualified individuals from serving in executive roles at financial institutions. They might also contend that existing authorities are sufficient or that such measures could lead to excessive risk aversion, hindering innovation and growth in the financial sector.
The bill is relatively short and its core provisions are clear, making it accessible for a reader to understand its main intent and mechanisms within a reasonable timeframe.
Section 3(a) of the bill, amending 12 U.S.C. 1818 (Federal Deposit Insurance Act Section 8)
FDIC Authority to Recoup Compensation from Negligent Executives of Failed Banks
This provision grants the Federal Deposit Insurance Corporation (FDIC), when acting as a conservator or receiver for a failed insured depository institution, the power to recover compensation from current or former executive officers or directors whose negligence caused financial loss to the institution. This clawback applies to compensation received during the two-year period before the FDIC's appointment, with no time limit in cases of fraud. The FDIC is directed to define "compensation" broadly to include salary, bonuses, benefits, severance, deferred compensation, golden parachute benefits, and profits from securities sales.
Supporters argue
Supporters argue this provision is essential for holding executives accountable for their role in bank failures, ensuring that those whose negligence leads to financial loss cannot retain substantial compensation. It aims to deter reckless behavior and protect the financial system.
Critics contend
Critics might argue that applying clawback based on "negligence" could be overly broad and subjective, potentially leading to a chilling effect where qualified individuals are hesitant to take on leadership roles in financial institutions due to fear of retrospective penalties, even without intentional wrongdoing.
Tradeoffs
Balances the desire for executive accountability and financial stability against concerns about potential overreach and its impact on attracting talent to the financial sector.
Section 3(b) of the bill, amending Dodd-Frank Act Section 210(s)(1)
FDIC Authority to Recoup Compensation from Negligent Executives of Failed Covered Financial Companies
This provision extends the FDIC's clawback authority to executive officers and directors of "covered financial companies" (systemically important non-bank financial institutions) that fail and are placed into orderly liquidation. Similar to the bank-specific authority, it allows the FDIC, as receiver, to recover compensation received within two years prior to its appointment if negligence caused financial loss, with no time limit for fraud.
Section 4(a) of the bill, amending 12 U.S.C. 1818(e) (Federal Deposit Insurance Act Section 8(e))
Prohibition from Banking Industry for Negligent Executives of Failed Institutions
This provision grants appropriate Federal banking agencies the authority to prohibit any institution-affiliated party (including executive officers and directors) from further participation in the affairs of any insured depository institution if that party is determined to have negligently caused financial loss to a failed insured depository institution. This expands existing prohibition powers which typically require more severe misconduct.
Section 5(a) of the bill, amending 12 U.S.C. 1818(i)(2) (Federal Deposit Insurance Act Section 8(i)(2))
Tiered Civil Penalties for Executives Contributing to Institution Failure
This provision introduces new civil money penalties for executive officers or directors who contribute to the failure of an insured depository institution. A "first tier" penalty of not more than $25,000 per day applies if negligence caused financial loss. A "second tier" penalty, not to exceed the maximum amount for existing second-tier penalties (which can be up to $1,000,000 per day or 1% of assets), applies if the executive knowingly or recklessly caused financial loss. This creates specific penalties tied to institution failure and varying degrees of culpability.
These sections make numerous technical conforming amendments to the Federal Deposit Insurance Act to update cross-references following the insertion of new paragraphs related to removal, prohibition, and civil money penalties. These adjustments ensure the bill's new authorities are correctly integrated into existing law.
Sections 4(b) and 5(b)
Why it matters:This is standard legislative practice to ensure legal consistency and proper integration of new provisions into existing law. It's not evasive, but rather a necessary technical detail.
Case for: Ensures the new authorities granted in the bill are correctly referenced and function as intended within the broader legal framework, preventing unintended conflicts or ambiguities.
Case against: No specific case against conforming amendments themselves, as they are technical necessities.
Estimated impact: Ensures the legal operability of the bill's core provisions.
This section explicitly states that the Act and its amendments may not be construed to limit the enforcement authorities that financial regulators and law enforcement agencies had prior to the date of enactment. This ensures that the new powers are additive and do not inadvertently curtail regulators' current abilities.
Section 6
Why it matters:Standard legislative practice to clarify the scope and intent of new legislation relative to existing law, ensuring new provisions are additive rather than superseding.
Case for: Ensures that the new authorities granted by the bill are understood as supplementary, not restrictive, preserving the full range of tools available to regulators and law enforcement.
Case against: No specific case against this, as it aims to prevent unintended negative consequences.
Estimated impact: Preserves the full scope of regulatory and law enforcement powers.