Failed Bank Executives Clawback Act

Bill Number

S. 4050

Origin Chamber

Senate

Congress

119th Congress, Session 2

Policy Area

Finance and Financial Sector

Status

Introduced

Latest Action

2026-03-11: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.

Last Updated

2026-03-30T15:40:00Z

AI-Generated Summary

Purpose of the Legislation

The Failed Bank Executives Clawback Act (S. 4050) aims to strengthen accountability for executives and key personnel at large failed banks by clarifying the authority of the Federal Deposit Insurance Corporation (FDIC) and other federal regulators to recover (or "claw back") certain compensation paid to them. This helps recoup financial losses to the banking system from mismanagement or failure, reducing the burden on the Deposit Insurance Fund, which protects depositors.

Key Provisions

• Clawback Authority (Amendment to Federal Deposit Insurance Act):
• Applies to insured banks (depository institutions covered by FDIC insurance) with total assets exceeding $10 billion.
• In cases of bank insolvency, resolution, or FDIC appointment as receiver, the FDIC must attempt to claw back all or part of "covered compensation" received by "covered parties" in the three years prior to the failure.
• Clawed-back funds are deposited into the Deposit Insurance Fund to offset losses.

• Definitions:
• Covered Compensation: A broad category including salary, bonuses, performance-based pay (tied to financial or other metrics), equity awards (like stock options), service-based rewards, nonfinancial metric awards, and profits from buying or selling securities.
• Covered Party: Individuals or entities responsible for significant financial harm to the bank, such as:
• Directors, officers, or controlling stockholders (excluding bank holding companies).
• Persons required to file change-in-control notices with regulators.
• Shareholders, joint venture partners, or others who actively participate in bank affairs and are deemed primarily responsible for the failure by regulators (determined via rules or case-by-case review).

• Orderly Liquidation Amendment (Dodd-Frank Act):
• Clarifies the FDIC's power to handle compensation recovery for any financial company under its receivership, regardless of the appointment process.

Significant Changes to Existing Law

• New Clawback Mechanism: Inserts a specific provision (paragraph 9) into Section 8(b) of the Federal Deposit Insurance Act (12 U.S.C. 1818(b)), explicitly granting FDIC and regulators authority to recover executive pay that was not previously detailed in this way. Prior law allowed penalties and removal of executives but lacked clear clawback powers for broad compensation types.
• Dodd-Frank Clarification: Modifies Section 204(a)(3) (12 U.S.C. 5384(a)(3)) to remove ambiguity about the FDIC's role in orderly liquidations of large financial firms, ensuring consistent application of recovery powers.
• These changes build on post-2008 financial reforms (like Dodd-Frank) by targeting larger banks and expanding what can be recovered, but they do not apply retroactively to past failures.

Potential Impacts

• On Government Agencies: Empowers the FDIC to more effectively manage bank failures by recovering funds directly into the Deposit Insurance Fund, potentially lowering insurance premiums for banks and reducing taxpayer exposure (as the fund is backed by banks, not direct government spending).
• On Citizens: Indirectly protects depositors by strengthening the safety of the banking system and discouraging risky executive decisions that could lead to failures; however, it may not directly affect everyday consumers unless a bank failure occurs.
• On International Relations: Minimal direct impact, though it could enhance U.S. financial stability, influencing global confidence in American banks and regulatory standards.
• Overall, it promotes safer banking practices, potentially reducing the frequency or severity of future crises like 2008.

Main Stakeholders Affected

• Bank Executives and Directors: Face personal financial liability for up to three years of compensation if deemed responsible for a failure, increasing scrutiny on their decisions.
• Large Insured Banks (> $10 Billion in Assets): Subject to stricter accountability, which may lead to changes in compensation structures to mitigate clawback risks.
• FDIC and Federal Regulators: Gain clearer tools for enforcement, streamlining failure resolutions.
• Depositors and the Broader Financial System: Benefit from recovered funds that bolster the insurance fund, though small banks (under $10 billion) are exempt.

Notable Legal, Constitutional, or Political Implications

• Legal Implications: Strengthens regulatory enforcement but could invite challenges over due process (e.g., how "responsibility" is determined) or property rights, as clawbacks involve recovering already-paid compensation. Regulators must issue rules or case-by-case decisions, potentially leading to litigation on fairness.
• Constitutional Implications: Aligns with Congress's authority to regulate interstate commerce and banking (under the Commerce Clause), without apparent conflicts with free speech or other rights; however, broad definitions of "covered parties" might raise equal protection concerns if applied unevenly.
• Political Implications: Bipartisan support (introduced by senators from both parties) reflects post-financial crisis consensus on executive accountability, but it may fuel debates on overregulation of business versus protecting public funds. No major shifts in federal power, but it reinforces the "too big to fail" framework from Dodd-Frank.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Sen. Warren, Elizabeth [D-MA]

Cosponsors (13)

Sen. Hawley, Josh [R-MO], Sen. Cortez Masto, Catherine [D-NV], Sen. Britt, Katie Boyd [R-AL], Sen. Gallego, Ruben [D-AZ], Sen. Cramer, Kevin [R-ND], Sen. Warner, Mark R. [D-VA], Sen. Van Hollen, Chris [D-MD], Sen. Smith, Tina [D-MN], Sen. Warnock, Raphael G. [D-GA], Sen. Fetterman, John [D-PA], Sen. Kim, Andy [D-NJ], Sen. Blunt Rochester, Lisa [D-DE], Sen. Alsobrooks, Angela D. [D-MD]

Recent Actions

• 2026-03-11: Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
• 2026-03-11: Introduced in Senate

Bill Versions

• Failed Bank Executives Clawback Act — issued 2026-03-11 — PDF (5 pages)