A history of greed, mismanagement, deregulation, and weak oversight has resulted in a litany of banking and financial system crises over the last 40 years. Future crises could be prevented by:

  • Strengthening regulation,
  • Increasing deposit insurance, and
  • Holding bank executives personally liable and culpable.

(Note: If you find my posts too much to read on occasion, please just read the bolded portions. They present the key points I’m making.)

Greed and mismanagement by bank executives led to the collapse of three banks in early March. Deregulation of “mid-size” banks in 2018 and 2019, along with failures of banking oversight by the Federal Reserve (the Fed), were also major factors in the banks’ collapses. The Chair of the Federal Reserve, Jerome Powell, bears significant responsibility for the conditions that led to these bank failures. (See this previous post for more details.) The first two strategies above for preventing future banking crises – strengthening regulation and increasing deposit insurance – were discussed in this previous post.

To hold bank executives personally liable and culpable when their banks fail, banking regulators and the Justice Department should:

  • Demand the return of executives’ compensation (i.e., “claw back” compensation), especially when it was linked to the stock price or other metrics that were inflated by inappropriate risks taken by the executives. For example, CEO Becker of the failed Silicon Valley Bank (SVB) received $9.9 million in compensation last year, including a $1.5 million bonus for increasing profitability. He made $3.6 million from selling SVB stock in late February, just weeks before his bank collapsed. In the previous four years, he collected $58 million from the sale of stock received as part of his compensation. Similarly, several top executives at First Republic Bank, which was also bailed out, sold almost $12 million in stock in the two months before their bank went under. Senator Warren (D-MA) is asking for the details of ten years of compensation for the executives at the bailed-out banks, including what criteria were used to determine their bonuses. Senator Warren is calling on bank regulators to demand repayment of executives’ pay and bonuses when they are linked to engagement in high-risk activities.
  • Investigate bank executives for possible illegal insider trading. Senator Warren is also calling for an investigation into whether these executives engaged in illegal sales of their banks’ stock based on inside information and into other possible illegal activities.
  • Charge executives of bailed-out banks with criminal offenses. Prior to 2003, criminal prosecutions were the norm. In the 1980s savings and loan scandal, more than 1,000 bank executives were prosecuted and many went to jail. Then, under President G. W. Bush, the prosecutions of bank executives stopped and were replaced by Deferred Prosecution Agreements (DPAs). These DPAs typically impose corporate fines and include promises of remedial action, but criminal prosecution is deferred and almost never invoked, even when repeat offenses occur. [1]
  • Ban senior executives of failed banks from future employment in the financial industry.

One exception to the new norm of using DPAs instead of criminal prosecutions is occurring now and may indicate a shift in the norm under the Biden administration. Wells Fargo bank created roughly 3.5 million unauthorized customer accounts and issued about 500,000 unauthorized credit cards, costing customers billions of dollars. The corporation and the Trump Justice Department settled with a DPA that required Wells Fargo to pay $6.7 billion in fines and restitution, while five senior executives personally paid civil fines of tens of millions of dollars. The CEO lost his job and the executive under him who presided over the creation of the fraudulent accounts was prosecuted and just pled guilty to a reduced charge of interfering with a bank examination. She might actually do some jail time, although sentencing hasn’t occurred yet. [2]

In conclusion, it’s well past time to stop bank executives from pocketing private profits while socializing risk (i.e., dumping losses on the government and taxpayers). Repeated bailouts and the failure to prosecute individuals reinforces and incentivizes inappropriate risk-taking by bank executives. And, as history has proven, they will take inappropriate risks in order to enrich themselves. Accountability and deterrence are sorely needed; they are essential to preventing the next banking crisis. The steps listed above would serve as strong deterrents to future bad behavior by bank executives.

In the aftermath of this (hopefully mini-) banking crisis, President Biden has called for more accountability and punishment for executives of the failed banks, including clawing back compensation, imposing fines, and banning them from working in the banking industry. [3] He has also called for stricter regulation by executive branch agencies, noting that the Trump administration weakened key regulations. Treasury Secretary Yellen has echoed Biden’s statements and has noted that “the costs of proper regulation pale in comparison to the tragic costs of financial crises.” [4]

Senator Warren and Representative Porter (D-CA) have filed legislation that would strengthen banking regulations, including reversing the provisions in the 2018 EGRRCP law that dramatically weakened regulation of mid-size banks, like the three that just collapsed.

I urge you to contact President Biden and your U.S. Representative and Senators to ask them to support the strengthening of banking regulations and the holding of bank executives accountable with financial, criminal, and other consequences. Urge them to call on Fed Chair Powell to resign due to his complicity in these bank failures.

You can email President Biden at http://www.whitehouse.gov/contact/submit-questions-and-comments or you can call the White House comment line at 202-456-1111 or the switchboard at 202-456-1414.

You can find contact information for your US Representative at  http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]      Kuttner, R. 3/20/23, “Former Wells Fargo exec could do prison time,” The American Prospect https://prospect.org/justice/2023-03-20-wells-fargo-exec-justice/

[2]      Kuttner, R., 3/20/23, see above

[3]      Gardner, A. 3/18/23, “Biden calls for tougher penalties on bank execs,” The Boston Globe from Bloomberg

[4]      Hussein, F., & Boak, J., 3/31/23, “Biden calls to revive bank regulations,” The Boston Globe from the Associated Press



  1. Thanks John!

    This is great - I’ll try to put on my list but really even more overwhelmed than usual - you could probably tell by my missing thursday’s meeting because I didn’t realize it was Thursday  - sigh - hope all saw my heartfelt apology on slack -  


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