Lawmakers press Fed Chief Janet Yellen to punish Wells Fargo for fake accounts scandal
Outraged lawmakers pressed Federal Reserve Chairwoman Janet L. Yellen on Wednesday to punish Wells Fargo & Co. for creating as many as 2 millions fake accounts, but she declined to commit to any regulatory penalties.
“Two million phony accounts. Break them up!” Rep. Brad Sherman (D-Porter Ranch) told Yellen during her appearance before the House Financial Services Committee on the Fed’s regulatory responsibilities.
The hearing signaled that Wells Fargo Chief Executive John Stumpf will face another verbal assault Thursday when he testifies before the committee about the bank’s fake accounts and aggressive sales tactics in his second trip to Capitol Hill to address the scandal.
Stumpf faced sharp, bipartisan criticism in a Senate Banking Committee hearing last week, including a call from Sen. Elizabeth Warren (D-Mass.) that he resign and be criminally investigated.
The anger Wednesday from House members also could mean trouble for two federal regulators with direct oversight of Wells Fargo’s retail banking operations — the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency — when their officials face questions at an upcoming hearing about why they didn’t stop the problems sooner.
Sherman said Wells Fargo’s widespread improper sales tactics indicated the giant San Francisco-based bank was too big to manage. He asked Yellen whether she would “at least seriously consider breaking up Wells Fargo” using the Fed’s authority to downsize banks that pose a risk to the financial system.
“We will hold the largest [financial] organizations to exceptionally high standards of risk management, internal controls and consumer protection,” she said.
After Sherman said that the Fed hasn’t been able to do that with Wells Fargo, Yellen responded, “We believe it is possible, even though it is extremely challenging.”
When violations do occur, Yellen said that bank executives should face consequences.
Wells Fargo’s board took a step toward accountability Tuesday, announcing that Stumpf would forfeit about $45 million in compensation because of the improper activity that took place on his watch.
Carrie Tolstedt, the executive in charge of the division where much of the activity took place, will lose about $19 million worth of stock as well.
This month, Wells Fargo agreed to pay $185 million to settle investigations by the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and Los Angeles City Atty. Mike Feuer into an aggressive sales culture that pushed bank employees to open as many as 2 million accounts that customers didn’t authorize.
The bank has fired 5,300 employees since 2011, but Rep. Keith Ellison (D-Minn.) said senior executives needed to pay a price for the sales culture they created.
“How can line-level workers be held accountable to the degree they clearly have been and yet nobody in mid-level or upper-level management seems to be taking responsibility for it,” he said. “I mean, they haven’t lost their jobs.”
Rep. Stephen Lynch (D-Mass.) criticized the settlement because the bank did not admit any wrongdoing.
“If it didn’t happen here, how we can even imagine ever that a bank might be required to take responsibility?” Lynch said. “It blows my mind that they’re getting away with this and they’re paying a little slap-on-the-wrist fine.”
The Fed supervises the parent holding company of Wells Fargo and the largest U.S. banks. Last week, Yellen said the Fed would look into the procedures at those banks to make sure they were complying with consumer protection laws and other regulations.
Yellen recommitted to that review on Wednesday.
“We are undertaking a look comprehensively, not only in the consumer area but in compliance generally, because there has been a very disturbing pattern of violations,” she said. Among the areas where those have occurred are mortgages and foreign exchange trading, Yellen said.
Yellen also said she’s hopeful the Fed and other financial regulators soon would finish new rules for incentive-based compensation that would try to reduce risk-taking, such as requiring large banks to defer at least half of the bonus payments to executives for four years.
Rep. Michael Capuano (D-Mass.) said Wells Fargo has faced 16 enforcement actions over the past five years, including an $85-million fine from the Fed in 2011 for mortgage lending abuses.
That fine was “laughable” to a bank the size of Wells Fargo, he said.
“Don’t you think it’s time the Fed does something?” in light of the recent scandal, Capuano asked. “How long does this stuff go on before you get outraged and take action?”
Rep. Maxine Waters (D-Los Angeles) said “the enormous failure of risk management at Wells Fargo” could pose a threat to the financial system.
“Fraudulent retail banking practices may not, in and of themselves, pose systemic risk, but they surely indicate mismanagement that could be catastrophic in riskier and more complex divisions of a bank holding company,” Waters said. “Supervisors and law enforcement must continue to hold both institutions and individuals accountable.”
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12:50 p.m.: This article was updated with additional details.
11:05 a.m.: This article was updated with comments from the hearing from Federal Reserve Chairwoman Janet L. Yellen and Rep. Keith Ellison (D-Minn.), as well as additional background.
This article originally was published at 9:25 a.m.
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