Business, Economics and Jobs

Clawing back bad banker pay


The Washington Mutual building, pictured the morning after it was seized by the FDIC in 2008. WaMu's is the biggest US bank failure in history.


Robert Giroux

It is an astounding and under-reported fact: nearly every week in America, banks fail. More than 40 have collapsed this year. It's become routine: on Fridays, the FDIC seizes control of these bankrupt banks. It makes depositors whole, up to the $250,000 per depositor insurance limit. And it sells their assets to another bank. (Here's FDIC's failed bank list).

But what about the executives whose decisions lead to these failures? And what about the billions in American wealth lost during the financial crisis? Is anyone held accountable? Or do the executives just get to keep their fat paychecks and kick back at summer homes despite sometimes grievous incompetence?

As ProPublica has documented, there have been a number of investigations, but as of May "no top banking executives have been successfully prosecuted in connection with the financial crisis" — not for bad loans, for lying about mortgage quality, of foreclosing improperly.

As of this week, however, officials have a new weapon to wield against bad bankers: the FDIC has adopted a rule that will enable it to clawback up to two years' worth of salary from "negligent" bankers at "major" financial institutions. It has authority to do this under the much-maligned Dodd-Frank financial reform act. 

According to Reuters, "The agency was careful to point out that it was not using the more narrow standard of 'gross negligence.'"

Needless to say, bankers are not happy with the measure.

Of course, we'll have to wait and see if the FDIC ever uses this authority. Surely, many Americans would be pleased if they did.