Bank Failure Accountability Act
- Sponsor
- Rep. Tlaib, Rashida [D-MI-12]
- Committees
- Financial Services Committee (primary)
- Last action
- Jun 25, 2026
Bottom line
The bill aims to enhance accountability for senior financial executives by directly linking a portion of their compensation to institutional misconduct and failure, thereby protecting taxpayers and depositors.
What it actually does
This bill mandates that large financial institutions and their subsidiaries establish deferment funds, into which a significant portion of senior employee compensation is placed. These funds are then prioritized to pay civil or criminal fines levied against the institution or, in the case of depository institutions, to cover depositor losses before public insurance funds are used. The deferred compensation is only paid out to employees after a specified period if sufficient funds remain.
Proponents argue
Supporters argue that this bill directly addresses the historical problem of misaligned incentives in the financial sector, where executives have often benefited from short-term gains while avoiding personal financial consequences for long-term risks or misconduct. By mandating compensation deferment and prioritizing its use for fines and depositor protection, the bill ensures that those most responsible for institutional decisions bear a direct financial stake in the institution's long-term health and compliance, thereby safeguarding the financial system and public funds.
Opponents contend
Critics contend that this legislation could severely hamper the ability of U.S. financial institutions to attract and retain top global talent, as executives may seek employment in jurisdictions with less restrictive compensation rules. They argue that the administrative burden of establishing and managing these funds, coupled with the significant personal financial risk to senior employees, could make the U.S. financial sector less competitive and potentially lead to unintended consequences without necessarily preventing misconduct.
The bill is relatively short, making it accessible for an informed reader to grasp its core provisions and implications within a reasonable timeframe.
Section 3(a)
Establishment of Deferment Funds
This provision mandates that each covered financial institution and its subsidiaries must establish a dedicated deferment fund. This fund is specifically designed to hold compensation deferred from senior employees and can only be used for purposes explicitly permitted by the bill, primarily to cover fines or ensure depositor protection.
Supporters argue
Supporters argue that establishing a dedicated fund creates a clear, segregated pool of resources directly linked to executive accountability, ensuring that institutions have readily available funds to cover misconduct-related fines and depositor losses.
Critics contend
Critics might argue that this adds an administrative burden and complexity to financial institutions, potentially tying up capital that could otherwise be used for investment or other business operations.
Tradeoffs
This provision balances the need for clear financial accountability with the potential for increased administrative overhead for financial institutions.
Section 3(b)
Mandatory Compensation Deferment for Senior Employees
This section requires covered financial institutions to defer at least 50% of the compensation for senior employees that exceeds seven times the median compensation of the consolidated institution. These deferred amounts are placed into the deferment fund and are only paid back to the senior employee after a specified 'covered deferment period' if sufficient funds remain in the fund, meaning the funds were not used to pay fines or cover depositor losses.
Section 3(c)
Prioritized Use of Deferment Funds
This section dictates the primary uses for the deferment fund. First, if a covered financial institution or its subsidiary is subject to a civil or criminal fine, that fine must be paid from the deferment fund before any other source. Second, if a covered depository institution or credit union fails, the fund must be used to ensure depositors do not lose any of their deposits, with these funds being utilized before any amounts are paid from the Deposit Insurance Fund or the National Credit Union Share Insurance Fund.
Section 3(d)
Cancellation of Unrepayable Deferred Compensation
This provision mandates that covered financial institutions must have a policy in place to cancel any compensation deferred under the bill if the deferment fund lacks sufficient funds to repay it to the senior employee. This ensures that if the fund is depleted by fines or depositor payouts, the deferred compensation is genuinely forfeited.
Section 3(e)
Treatment of Deferred Compensation of Ex-Employees
This provision addresses the deferred compensation of individuals who are no longer employed by the financial institution. It requires that their deferred compensation be segregated within the fund and not used to pay fines for misconduct that occurred after their employment ended. However, these segregated funds can still be used to pay fines for misconduct that occurred while the individual was still employed by the institution.
Section 3(f)
Regulatory Rulemaking Authority
This section grants rulemaking authority to several federal agencies, including the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration, and the Securities and Exchange Commission. Each agency is authorized to issue rules necessary to carry out this section with respect to the covered financial institutions and subsidiaries under their respective supervision.
Defines 'senior employee' based on multiple criteria including executive status, total annual compensation over $1,000,000, and for larger institutions, being in the top 2% or 5% of most highly compensated employees, or having the authority to commit or expose 0.5% or more of the consolidated financial institution's capital. The specific thresholds for highly compensated employees and capital commitment authority vary by the institution's asset size.
Section 3(g)(7)
Why it matters:While placing definitions at the end of a bill is standard legislative practice, the intricate nature of this particular definition, with its tiered applicability, makes it easy for a casual reader to overlook its full implications for a broad range of financial professionals.
Case for: Supporters argue that a nuanced and comprehensive definition is necessary to accurately target individuals who hold significant responsibility and influence over risk-taking within financial institutions, ensuring accountability is focused on those truly in positions of power and preventing easy circumvention.
Case against: Critics might argue that the complexity of this definition could lead to ambiguity, making it difficult for institutions to precisely identify all affected employees and potentially leading to disputes, inconsistent application, or unintended inclusion/exclusion of personnel.
Estimated impact: Directly impacts thousands of high-earning employees across hundreds of large financial institutions by determining who is subject to the mandatory compensation deferment and its associated risks.
Defines 'covered deferment period,' which is the duration for which compensation is deferred. This period varies significantly based on the consolidated assets of the covered financial institution: 2 years for institutions with $10B-$50B in assets, 6 years for $50B-$250B, and 8 years for $250B or more. For institutions with less than $10B in consolidated assets, the deferment period is 'to be determined by the appropriate Federal regulator if determined necessary by such appropriate Federal regulator.'
Section 3(g)(4)
Why it matters:While part of standard legislative drafting, the significant regulatory discretion for a subset of covered institutions is a critical detail that shapes the bill's practical application and could lead to varied outcomes depending on agency interpretation.
Case for: Proponents argue that tailoring deferment periods to institutional size reflects differing risk profiles and allows regulators necessary flexibility for smaller entities, preventing undue burden while maintaining a framework for accountability across the sector.
Case against: Opponents might argue that granting regulators such broad discretion for smaller institutions creates uncertainty and potential for inconsistent application, making compliance planning difficult for institutions and potentially leading to regulatory arbitrage.
Estimated impact: Determines the duration of financial risk for senior employees and the period funds are held in deferment, significantly affecting capital management, liquidity, and individual financial planning across the financial sector.