Tlaib Introduces Bank Failure Accountability Act

WASHINGTON, D.C. – Today, Congresswoman Rashida Tlaib (MI-12), member of the House Financial Services Committee, introduced the Bank Failure Accountability Act to stop bank executives from getting huge payouts while breaking the law or leading their company to collapse. Today, senior employees at big banks are encouraged by compensation incentives to take on excessive risk–which puts everyone’s economic security in jeopardy. The bill flips these incentives, so if a CEO tanks their company chasing a massive pay package, their own money will be on the line.

The American people are tired of paying for bank failures, both directly via public funds and indirectly from the resulting economic fallout. Unfortunately, CEO pay packages make failure more likely by incentivizing risky, short-term profit-seeking. That is why the Bank Failure Accountability Act requires large financial institutions to place a portion of senior employee compensation into a deferred fund. In the case of a company’s failure and/or employee misconduct, the fund would be used to cover the costs of any fines and make sure depositors do not lose their deposits. After two to eight years (depending on the size of the financial institution) without misconduct or firm failure, the funds are paid out to the employee. 

“Time and again, we have seen executives and senior employees at large financial institutions pursue short-term profits at any cost because their compensation packages encourage excessive risk-taking,” said Congresswoman Tlaib. “Executives pocket millions of dollars while workers and communities pay the price for their greed and recklessness. The Bank Failure Accountability Act reverses these corrupt incentives, allowing financial executives and senior employees to be held accountable for the consequences of their actions.”

After the 2008 financial crisis, Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act tasked federal financial regulators with implementing a rule banning compensation incentives that encourage inappropriate risk-taking. However, more than 15 years later, this rule has yet to be finalized. The Bank Failure Accountability Act would supplement the incentive-based compensation rules yet to be implemented under Section 956 of Dodd-Frank.

As demonstrated by the 2023 banking failures, misaligned incentives continue to pose a threat to our financial system and to Americans’ economic security. After Silicon Valley Bank failed, the Board of Governors of the Federal Reserve found that “The incentive compensation arrangements and practices at SVBFG encouraged excessive risk-taking to maximize short-term financial metrics.”

“The public is hungry for wealthy executives to be held accountable for the harm their self-serving risk-taking has caused,” said Natalia Renta, Esq., Associate Director of Corporate Governance & Power, Americans for Financial Reform. “By setting aside a significant portion of pay that executives could lose in cases of failure of their financial institution or fines levied for wrongdoing, the Bank Failure Accountability Act would create a structure for ensuring accountability—and disincentivize some of the worst behavior as a result.”

“Rep. Tlaib’s ingenious bill effectively deputizes every banker to police one another. That’s better oversight than provided by the board of directors, auditors, shareholders, bondholders and even regulators. These inside police are at work everyday with their own pay on the line if misconduct and reckless banking goes unchecked. Public Citizen heartily endorses this bill,” said Bartlett Collins Naylor, Financial Policy Advocate of Public Citizen.

This legislation is cosponsored by Representatives Al Green (TX-09), Summer Lee (PA-12), and Stephen Lynch (MA-08).

This legislation is endorsed by: Public Citizen, Americans for Financial Reform, and Take On Wall Street. 

The full text of the legislation can be found here. 

###