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Bolstered regulation expected after banks collapse

“Usually, the banks in their investment portfolios are very conservative, and may have gone out on a limb – especially the banks that have gotten involved in some of the more risky investments like the crypto craze that some of the newer banks have gotten involved in we may see some of that. But for the most part, what it did show is that our banking system is sound and was able to respond.”

Parallels drawn with Enron

Given the sheer scale of the implosions, Hayden compares the turmoil to that of the Enron scandal of 2001, when accounting loopholes, special purpose entities and opaque financial reporting led to shareholders filing a $40 billion lawsuit. As a result of that scandal, new regulations and legislation were enacted to expand the accuracy of financial reporting for public companies.

Collapsing within days of each other earlier this month, Silicon Valley Bank of Santa Clara, Calif., and Signature Bank of New York City represented the second- and third-largest bank failures in US history, respectively.

What banking law changes could arrive in 2023?

Hayden expects to see new regulation emerging as a result of the banks’ collapse: “There will definitely be investigations undertaken into what happened and how it happened,” he said. “I anticipate there will be new banking regulation put in place to try to address some of the concerns.”

Some of that bolstered oversight has already begun. On Wednesday, a bipartisan group of senators drafted legislation that would empower the Federal Deposit Insurance Corp. (FDIC) to confiscate executive compensation in taking over a failed bank, according to multiple media reports. The legislation would allow regulators to claw back executive pay in a five-year period leading up to a banking collapse.

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