HR-7886-119
Referred to the House Committee on Financial Services.
Sponsored by Maxine Waters (D-CA)
What it does
This bill would give federal banking regulators — primarily the FDIC — new authority to recover (or "claw back") up to two years of compensation from bank executives and directors whose negligence caused a bank to fail. It would also allow regulators to permanently ban those individuals from working in the banking industry and impose civil fines of up to $25,000 per day for negligent conduct, with higher fines for knowing or reckless conduct. In fraud cases, the two-year lookback period would be removed entirely.
Who benefits
Depositors and creditors of failed banks who may recover more funds through clawback proceeds. Taxpayers and the FDIC's Deposit Insurance Fund, which absorbs losses from bank failures. Smaller, more conservatively managed banks that compete against institutions whose executives took excessive risks. Future bank customers who may benefit from stronger executive accountability deterring risky behavior. Shareholders of healthy banks who may see reduced systemic risk.
Who is hurt
Current and former bank executives and directors at any insured depository institution that fails, who would face potential loss of compensation earned up to two years before failure. Executives at large financial institutions who receive significant deferred compensation, bonuses, or stock-based pay. Legal and compliance departments at banks, which would face increased costs to document and defend executive decision-making. Executives at well-run banks that fail due to external market conditions (e.g., interest rate shocks) rather than misconduct, who could face clawback actions under a negligence standard. Attorneys and advisors who may face increased litigation as executives contest clawback determinations.
Supporters argue
Supporters argue that the 2023 failures of Silicon Valley Bank, Signature Bank, and First Republic Bank — which cost the Deposit Insurance Fund tens of billions of dollars — demonstrated that executives faced little personal financial consequence for decisions that destroyed their institutions. They contend that existing law required proof of intentional misconduct or unsafe practices, setting too high a bar, and that a negligence standard aligns executive incentives with long-term institutional safety. They further argue that clawback authority already exists in limited form under the Dodd-Frank Act but has rarely been used, and that this bill strengthens and clarifies that authority to make it practically enforceable.
Opponents argue
Opponents argue that applying a negligence standard — rather than requiring proof of intentional wrongdoing — creates an unreasonably low threshold that could expose executives to personal liability for good-faith business decisions that turned out badly, such as interest rate risk management strategies that were widely accepted at the time. They contend this could deter qualified candidates from serving as bank executives or directors, particularly at smaller community banks, and may push risk-taking decisions into less regulated entities. They also argue that the FDIC's rulemaking authority to define "compensation" and "negligence" is broad enough to raise concerns under the major questions doctrine and post-Loper Bright independent judicial review of agency interpretations.
Constitutional context
Congress has broad authority to regulate the banking industry under the Commerce Clause (Art. I, §8, cl. 3), and the FDIC's existing enforcement powers under the Federal Deposit Insurance Act have long been upheld. However, the bill delegates significant definitional and enforcement discretion to the FDIC — including defining "compensation" and determining "negligence" — which, after Loper Bright v. Raimondo (2024), means courts will independently review whether the agency's implementing regulations stay within the statutory boundaries Congress set, without deferring to the agency's own interpretation.
Checks and balances
The executive branch (FDIC and other federal banking agencies) gains new clawback, prohibition, and civil penalty authority; checks include judicial review of agency actions, the requirement that negligence be determined through formal administrative proceedings, and the rule of construction in Section 6 that limits the bill to expanding — not replacing — existing enforcement tools.
Historical precedent
Section 210(s) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) established a predecessor clawback provision for executives of failed systemically important financial institutions, but it has been used infrequently and is the provision this bill directly amends.