Elizabeth Warren calls on Fed to dismantle Wells Fargo


Senator Elizabeth Warren said Wells Fargo ran out of time to address the many internal issues that have plagued its customers.

In a letter to Federal Reserve Chairman Jerome H. Powell on Monday, Ms Warren called on the Fed to force the financial giant to cut off core banking activities, such as offering checking, savings and credit accounts. loans, its other financial services. .

Divorcing Wall Street-centric work – which may include managing investment funds and providing financial market selling and trading services – from the bank would ensure that Wells Fargo’s day-to-day customers don’t continue to suffer, wrote Ms Warren. The Fed could achieve this, she explained, by revoking Wells Fargo’s financial holding license, essentially making it impossible for the company to operate non-banking activities.

“Continuing to allow this giant, culturally broken bank to operate in its current form poses substantial risks to consumers and the financial system,” she wrote.

This is the first time that Ms Warren, a Democrat from Massachusetts, has made such a request to a regulator. Mr Powell is unlikely to follow the suggestion, at least for the foreseeable future: Wells Fargo would somehow have to get rid of dozens of non-bank subsidiaries quickly, which would certainly hurt the financial health of the bank.

But Ms Warren’s demand for such aggressive action hinted at the desire among progressives for a stronger regulatory hand from the Fed. And it comes as President Biden plans to re-elect Mr. Powell at the end of his term early next year.

A Fed spokesperson confirmed that the central bank received the letter.

A Wells Fargo spokesperson responded to a request for comment by emailing reporters a list of steps the bank has taken since 2019 to change its management structure. The list included replacing senior executives, splitting companies into new groups with separate oversight, creating a “sales practices oversight” protocol, and speeding up the return to customers it has wronged.

Wells Fargo has spent years trying to redress its position with regulators and lawmakers after a cascade of disclosures of wrongdoing the bank made against its customers. He admitted to opening accounts in their names without their knowledge, forcing them to purchase unnecessary insurance and charging them unwarranted mortgage fees.

The bank’s statement also pointed out that Wells Fargo had fulfilled two improvement requirements that regulators had placed on it. One, from 2015, forced it to improve its monitoring of the fight against money laundering. The other, from 2016, required it to put an end to harmful business practices.

The idea of ​​revoking the bank’s financial holding license was first proposed two years ago by Jeremy Kress, an assistant professor of business law at the Ross School of Business at the University of Michigan. He argued in a academic document that since the Fed requires institutions seeking such a license to have a high regulatory rating – 1 or 2 out of 5 on a scale that federal regulators use to assess whether a bank is well run – any bank that subsequently goes down should lose this.

In her letter, Ms Warren pointed out a report from early 2018, revealing that Wells Fargo’s regulatory rating, normally kept under wraps, had fallen below the level at which the bank could be considered “well run.” She added that it was “inconceivable” that Wells Fargo could have improved her rating recently given her lingering problems.

Last week, federal regulators announced another round of fines and restrictions on the bank, over its improper management of some of its clients’ home loan portfolios. The Office of the Comptroller of the Currency found that Wells Fargo’s handling of its mortgage accounts had been so sloppy that it may have improperly foreclosed on the homes of some borrowers. The regulator fined the bank $ 250 million, ordered it to suspend some pending foreclosures and gave it five months to get its management systems back on track.

Ms Warren’s suggestion would be a much bigger sanction and involve significant challenges, said Jaret Seiberg, analyst for the Cowen Washington Research Group.

“The banking system has evolved dramatically since Congress allowed investment banks and commercial banks to come together 25 years ago,” Seiberg said. “These transactions are now nested, and it’s not as simple as saying, ‘You have to sell half the bank.’ Breaking up is difficult. “

But revoking the bank’s license immediately isn’t Mr. Powell’s only option.

In an interview on Tuesday, Professor Kress said Mr Powell could order Fed officials to issue a new rule setting a limit – two or three years, for example – on how long a company could operate with a low management rating and maintain a license.

“It could set a precedent that this is a tool the Fed can use to hold banks accountable for financial faults,” Kress said.

The Fed has already taken drastic action in an attempt to force Wells Fargo to improve. Since early 2018, the bank has operated under an asset ceiling, which the Fed has committed to keeping in place until the bank can prove that it has overhauled its risk management procedures and put in place better protections for its customers. But Ms Warren said the bank was distracted from that goal, citing reports that Wells Fargo was trying to expand its business such as arranging business mergers and other investment banking services.

The bank should be forced to drop these lawsuits on Wall Street “to ensure that its executives focus all of their attention on correcting the bank’s many chronic shortcomings in risk management,” she wrote.

Wells Fargo is the nation’s fourth-largest bank, although its Wall Street presence – including investment banking and wealth management – is much smaller than that of competitors like JPMorgan Chase and Bank of America. Its managing director, Charles W. Scharf, has a background on Wall Street and, since its takeover two years ago, has tried to make Wells Fargo more profitable by orienting it more towards Wall Street.

“I am concerned that senior Wells Fargo executives are focusing on expanding risky investment banking business instead of addressing consumer harm and improving lax internal controls,” Ms. Warren said, although his letter to Mr. Powell does not mention Mr. Scharf by name.

Ms Warren sent a separate letter Monday to the chairman of the board of directors of Wells Fargo. He asked for details on how the board oversees the bank’s cleanup efforts and why he pays Mr Scharf so well – he received over $ 20 million in fiscal 2020 – even if the bank’s problems persist.


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