Brown, Scott float bank CEO penalty bill

The Senate Banking Committee plans to mark up the package — along with another bill backed by Scott and Brown that would target opioid trafficking — Wednesday before Congress goes into recess on July 4.

A big question is how well the bill will attract support from Warren and other lawmakers who worked with her to craft an earlier proposal that would claw back compensation from executives at failed banks. Warren had the backing of nearly half the Banking Committee — including key Republicans — and said Wednesday that her plan “represents the toughest proposal in Congress to ensure that failed executives who blow up their banks don̵[ads1]7;t walk away with huge bonuses.”

The Brown-Scott compromise targeting bank compensation is narrower in scope than Warren’s.

“I’m just very concerned that it’s going to be watered down,” Sen. Josh Hawley of Missouri, Warren’s leading Republican co-sponsor, said Thursday before Brown and Scott announced their plan. “If they don’t notice it, maybe I should just go to the floor and try to pass it.”

The tensions underscore the difficult political challenge Brown faces as he tries to find a compromise that can become law. That requires balancing lawmakers’ appetite to challenge the banking industry—a powerful lobbying force. It also comes at a delicate moment for Brown and Scott, with Brown facing a tough re-election campaign in his increasingly conservative home state of Ohio and Scott in the midst of a bid for the GOP presidential nomination.

The proposal that Brown and Scott put out — and must now sell to their members — would address concerns that the government is not doing enough to deter and hold accountable bank executives who take excessive risks and expose American taxpayers to potential bank bailouts.

The failures of Silicon Valley Bank and Signature Bank in March led the US government to freeze all their deposits – the vast majority of which were in excess of federal deposit insurance. The near-collapse of another bank, First Republic, triggered a $30 billion infusion from the biggest US lenders before JPMorgan Chase rescued it in a buyout.

Brown and Scott’s compromise seeks to address concerns stemming from recent bank failures by allowing regulators to claw back executives’ bonuses and profits from stock sales, among other forms of compensation. It also includes a so-called good governance provision that allows the banks’ boards to demand money back in the same way – and strengthens the regulators’ ability to fine managers, as well as ban managers from the industry.

Like Warren’s bill, Brown and Scott’s would exclude banks with less than $10 billion in assets. But while Warren’s bill goes back three years, Brown and Scott’s goes back just two. Warren’s bill would include a broader range of compensation, including wages. And Brown and Scott’s bill is permissive — meaning it would clarify regulators’ payback abilities, rather than mandate regulators to exercise them as Warren’s does.

“We have been working to find a sensible solution to address executive accountability that is tailored to protect the American taxpayer and limit government overreach,” Scott said in a statement.

The bank failures in March triggered a flurry of legislation from lawmakers to deal with the crisis. But the Warren refund proposal had recently appeared to be one of the most viable options. She introduced an initial version with Hawley, then worked with Sen. JD Vance — Brown’s Republican counterpart in Ohio — to garner bipartisan support on the Banking Committee, on which Vance serves.

But Brown chose to go his own way in talks with Scott as he put together a broader legislative package. Brown said in an interview Wednesday: “Warren’s bill is narrow; there are several others – and we take nothing.”

The comments prompted a response from Warren Wednesday.

“Our legislation represents the toughest proposal in Congress to ensure that failed executives who blow up their banks don’t walk away with huge bonuses, which is why it enjoys broad bipartisan support from Democrats and Republicans alike,” she said in a statement. “Any legislation that responds to the recent crisis must build on this consensus and actually deter future wrongdoing by big bank executives by hitting them where it hurts — their wallets.”

Vance said in an interview Thursday that he, Warren and the rest of the bill’s backers “did a lot of the groundwork in terms of solving problems and getting a bipartisan committee on board.”

“So I don’t know why we wouldn’t just use our bill,” he said.

It is unclear how other Democrats on the committee will respond to the compromise.

Sen. Bob Menendez of New Jersey, one of the Warren bill’s co-sponsors, said he had to make sure the Brown-Scott bill “has the essence” of Warren’s before signing it. Sen. Mark Warner of Virginia, another Warren co-sponsor, said, “I’ll be happy with anything that goes into the markup.”

“It shouldn’t be that hard to find a compromise on the simple principle that when a manager’s wrongful, negligent actions cause a bank to collapse, they shouldn’t be able to profit from it,” Sen. Chris Van Hollen (D-Md.), a Warren co-sponsor, said in an interview. “It seems like a basic principle.”

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