Schiff: ‘We Have the Wrong Incentives That Incentivize Management to Take Risks with Their Depositors’ Money’

(CNSNews.com) – Rep. Adam Schiff (D-Calif.) on Monday called for strengthening Dodd-Frank in the wake of Silicon Valley Bank failing last week.

Schiff said he’s looking into reports that executives with the failed bank Silicon Valley Bank (SVB) took bonuses on Friday and made stock trades to limit their exposure.

“It is something I’m looking into, and in fact, I plan to introduce legislation to claw back those earnings from these delayed bonuses from stock trades that were beneficial in the run-up to this run on the bank. I think we have as the discussion that proceeded this one indicates, in my view, a failure of oversight as well as a failure of the bank’s management, and they need different remedies,” he said.

“In terms of a failure oversight, I think we need to strengthen Dodd-Frank. I opposed those changes that weakened it in 2018, and I think we’re seeing some of the consequences of that now,” the congressman told MSNBC’s “Andrea Mitchell Reports.” 

“So we need to strengthen the regulatory and oversight requirements on banks like SVB, but also this was a colossal management failure, and I think we have the wrong incentives that incentivize management to take risks with their depositors’ money to get bonuses when they do take those risks,” Schiff said.

“And to the degree that it’s baked into a bank executive’s mindset that well, if all goes wrong, maybe we can count on treasury to bail us out even if it doesn’t involve taxpayer money to bail us out with the bank fee supported funds that’s the wrong incentive so the legislation I’m working on would claw back this executive compensation bonuses, stock sales so, that defrays some of the cost of these kind of rescues,” he said.

Schiff said that Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) “were certainly right that weakening Dodd frank was a mistake, and I think we need to strengthen it.”

“We will be analyzing the degree to which that repeal of a portion of Dodd-Frank in 2018 contributed to this, but certainly, the problem, the danger of systemic issues like this hasn’t gone away, and that ought to tell us that we need to move in the direct of stronger oversight and regulation, not weaker, and that is something I’m discussing with Maxine Waters, the ranking member on the Financial Services Committee about a broader package of reforms to address this recurrent problem,” he said.

“I think we also need to look at FDIC insurance and cover more than just depositors, but non-profits and payroll for workers to make sure that those things are protected against these management practices,” the congressman said.

When asked what do you do about the House Republicans, Schiff said, “Well, I would hope, but who knows, that in light of this you know, run on now two banks and panic among others, that there will be bipartisan support to look for remedies to once again strengthen oversight and regulation but, look the Republican Party has been consistent really in only on one thing. 

“Most of the ideology has gone out the window in the year of Trump, but the one consistent thing pre-trump, during Trump has been they answer to their wealthy donors and so I am skeptical of how much Republican support we’re going to get, but we need to try to get this done, and in the House right now. We can’t do it on our own,” he said.

When asked about his briefing with the Treasury Department and what questions were raised, Schiff said, “I think that Treasury in the two briefings that I participated with Treasury, with FDIC, initially were trying to maintain a strong face that they’re in a much better situation now than in the 20, the last meltdown and that they were really I think frankly downplaying the systemic risk, but then quickly reached the conclusion that now the risk was profound here, and they needed to take a bold step to try to deal with it. 

“I think most of us in the delegation remain very concerned with what this will do to the entrepreneurial economy, but also that we’ve created the wrong incentives here and these incentives for, as we saw with SVB, to invest in these securities that were long-term that were vulnerable to interest rate changes, that may have been very profitable for the bank in the near term, and it was, but it put all the depositors including a lot of people who didn’t even know that the payroll was handled by SVB, really deeply at risk,” he said.

“So I think among our delegation, we want to make sure that those small businesses and non-profits are protected, but we also recognize the more, the broader need and that is this bank did serve a valuable function within the entrepreneurial economy in California. We need someone to step into that role, but we need them to do it far more responsibly than SVB,” the congressman said.

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