Janet L. Yellen, in her last act as Chairman of the Board of Governors of the Federal Reserve System, imposed what are being described as unprecedented sanctions on Wells Fargo Bank for the bank’s ”widespread customer abuses” of the last several years.
The Fed cited not only the millions of customer accounts Wells Fargo opened without authorization, even forging some customer signatures, but also the more recent data that they had charged hundreds of thousands of their borrowers for unneeded guaranteed auto and collateral protection insurance for their automobiles. And let’s not forget the thousands of customers they enrolled in online bill pay without their authorization.
Wells Fargo will not be permitted to get any bigger than it was at the end of last year — $2 trillion in assets — until the Fed is satisfied that it has cleaned up its act. The vote for the sanctions was 3-0, with the new chairman, Jerome Powell, joining Ms. Yellen along with Gov. Lael Brainard.
Randal Quarles, the new vice chairman for regulation abstained, citing his previous decision shortly after he was confirmed to that position, to recuse himself from all Wells Fargo matters due to his wife’s family’s former financial interest with the bank.
Outgoing chair Janet Yellen, who completed her term February 3rd after four years in that position, said, “We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again.” … “The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers.”
“We cannot tolerate pervasive and persistent misconduct at any bank,” Janet Yellen said.
According to the Fed, Wells Fargo is replacing three current board members by April and a fourth board member by the end of the year. Sen. Elizabeth Warren (D-MA) who had long requested the Fed remove all Wells Fargo board members applauded the move, “Fines alone will never rein in fraudulent behavior at the big banks and by pushing out board members at Wells Fargo, (former) Chair Yellen sends a strong message.”
Senator Warren, when first learning of the Wells Fargo fraud blasted the bank, “You should resign, you should give back the money, and you should be criminally investigated” she told Wells Fargo’s chief executive, John G. Stumpf, during Senate hearings ( in 2016). (Watch in Times Video)
Her tweets shortly after the decision was made continue to applaud the Fed’s actions:
For months, I have repeatedly pressed Janet Yellen to hold Wells Fargo accountable for its fake accounts scam and push out responsible Board Members. Today she did it – in her last act as Fed Chair. pic.twitter.com/ebIkhu8R0a
— Elizabeth Warren (@SenWarren) February 3, 2018
Wells Fargo had become the poster child of greed and fraud as the charges against them continued to accumulate so it’s time a message of no tolerance was sent even though late and even though it could be much stronger. I’ve ranted about this for years.
We can “talk” culture all day long, mandate it, instill fear re-firing, but if leadership is not an example and role model for ethical behavior…well, it’s not going to happen! If a company wants to promote and assure ethical standards are followed, then transparency, trust and developing an ethical culture based on guiding principles is critical. Talking about culture and transparency and ethics doesn’t cut it. And we’ve been talking, period, for too long without holding people accountable.
Rewarding profits at any cost, which was the model Wells Fargo was using, is a perfect example of “accounting control fraud,” which I’ve been talking to associations about, and SEACEN, in Kuala Lumpur, to their central banks about. It’s short-term and, as we can see by the Wells Fargo example, bound to blow up.
Common sense and common decency toward its customers and employees were not part of Wells Fargo’s code of behavior. It ran rampant over employees, retaliating against those who saw the fraud and attempted to speak up.
Ms. Yellen is now with the Brookings Institute in Washington D.C. as a distinguished fellow at the Hutchins Center on Fiscal and Monetary Policy.
I wish her well and only hope this precedent will spur the Fed and its new chairman, Jerome Powell, to take action sooner, rather than later.