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Biden urges Congress to crack down on failed bank executives

President Biden urged Congress on Friday to give the Federal Deposit Insurance Corporation (FDIC) more power to punish executives in charge of banks that fail and require assistance from the federal government.

In a request to Congress, the president said the FDIC should have more authority to take back executives’ pay, levy fines against them and bar them from future employment in the banking sector.

“When banks fail due to mismanagement and excessive risk taking, it should be easier for regulators to claw back compensation from executives, to impose civil penalties, and to ban executives from working in the banking industry again,” Biden said in a statement.

Read more: What you need to know about this week’s banking crisis

“Congress must act to impose tougher penalties for senior bank executives whose mismanagement contributed to their institutions failing.”

With the House controlled by Republicans and the Senate by Democrats, any legislation on the financial sector would have to surmount numerous hurdles.

On Sunday, the FDIC, Treasury Department and Federal Reserve announced that they would fully insure deposits at Silicon Valley Bank (SVB) and Signature Bank after account holders started pulling out their money, causing the banks to fail.

On Thursday, a consortium of 11 larger banks provided $30 billion to prop up California-based First Republic after its credit was downgraded by ratings agencies including Fitch, which cited “uninsured deposits as a percentage of total deposits” as a reason for the demotion.

Bank-to-bank bailout: First Republic Bank getting bailed out by large banks in $30 billion plan

The government’s move to insure wealthy account holders at SVB and Signature above the FDIC’s $250,000 standard insurance limit raises the question of whether all accounts in the $26 trillion banking sector are now implicitly insured by the Federal Reserve and Treasury — and ultimately the U.S. taxpayer.

Biden’s request to Congress doesn’t touch on this question, though some lawmakers have started talking about it themselves.

Rep. Blaine Luetkemeyer (R-Mo.), a member of the House Financial Services Committee, told Politico Wednesday that the government should insure all bank deposits on a temporary basis.

“If you don’t do this, there’s going to be a run on your smaller banks,” he said. “Everyone’s going to take their money out and run to the JPMorgan’s and these too-big-to-fail banks, and they’re going to get bigger and everybody else is going to get smaller and weaker, and it’s going really be bad for our system.”

Analysts for Goldman Sachs wrote over the weekend that they did not expect near-term actions in Congress to provide guarantees.

Tags Blaine Luetkemeyer Federal Deposit Insurance Corporation federal reserve Joe Biden Signature Bank Silicon Valley Bank Treasury Department

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File - A Chevrolet Bolt is displayed at the Philadelphia Auto Show, Jan. 27, 2023, in Philadelphia. Electric vehicles are far less reliable than gasoline-powered cars, trucks and SUVs, mainly because most automakers are still learning how to build a completely new power system, according to this year's auto reliability survey by Consumer Reports.(AP Photo/Matt Rourke, File)
File - A Chevrolet Bolt is displayed at the Philadelphia Auto Show, Jan. 27, 2023, in Philadelphia. Electric vehicles are far less reliable than gasoline-powered cars, trucks and SUVs, mainly because most automakers are still learning how to build a completely new power system, according to this year's auto reliability survey by Consumer Reports.(AP Photo/Matt Rourke, File)

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In this photo released by the Governor of Sevastopol, Mikhail Razvozhayev telegram channel, a rescuer gestures as he helps people during an evacuation after storm and flooding in Sevastopol, Crimea, Monday, Nov. 27, 2023. A storm in the Black Sea took down power grids and left almost half a million people without power after it flooded roads, ripped up trees and damaged buildings in Crimea, Russian state news agency Tass said. (Governor of Sevastopol Mikhail Razvozhayev's telegram channel via AP)
In this photo released by the Governor of Sevastopol, Mikhail Razvozhayev telegram channel, a rescuer gestures as he helps people during an evacuation after storm and flooding in Sevastopol, Crimea, Monday, Nov. 27, 2023. A storm in the Black Sea took down power grids and left almost half a million people without power after it flooded roads, ripped up trees and damaged buildings in Crimea, Russian state news agency Tass said. (Governor of Sevastopol Mikhail Razvozhayev's telegram channel via AP)

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