Last month, Massachusetts Senator Elizabeth Warren urged the Federal Reserve to oust the 12 Wells Fargo board members who served during the bank’s fake account fiasco. Today, she received a response, sort of.
Federal Reserve Chair Janet Yellen revealed during a semiannual testimony today before the Senate Banking Commission, which Warren serves on, that the central bank would take action if the results of its investigation warrant such a response.
Warren urged Yellen in a letter [PDF] in June that the central bank should hold Wells Fargo’s board accountable for the actions of employees, who were found to have opened millions of unauthorized accounts in order to meet sales goals.
The senator argued that the Reserve has the authority to remove the 12 members, who served on the bank’s board from May 2011 to July 2015, the timeframe in which the fake account scandal occurred.
According to Warren, Congress has empowered the Federal Reserve to remove board members if they “violated any law or regulation,” “engaged or participated in any unsafe or unsound practice” that caused an insured depository institution to “suffer financial loss” and that demonstrated “continuing disregard… for the safety or soundness” of that institution.”
The lawmaker contended that each of these elements were highlighted in an April report about the scandal. For instance, Warren notes that the scandal revealed “severe problems with the bank’s risk management practices.”
“The Board’s failure to establish adequate risk management practices and uncover these improper retail sales practices demonstrated ‘continuing disregard’ for the bank’s safety and soundness,” Warren wrote, noting that the report detailed the Board’s refusal to seriously address the improper sales practices despite years of red flags.
Today, Warren once again pressed Yellen on the matter.
Warren noted that Wells Fargo’s board is ultimately responsible for following Federal Reserve rules related to ensuring banks have processes and systems in place to address emerging risk.
“Wells Fargo didn’t come close to meeting those requirements,” Warren said. “They established impossible cross selling goals and pressure on employees to open new accounts for customers. Despite a mountain of evidence that these incentives were leading to the opening of fake accounts, the board did nothing for years.”
“How could the Wells board possibly meet their requirements?” she asked.
While Yellen said that she was not prepared to speak in detail about confidential supervisory matters, she noted that the behavior at Wells “was egregious and unacceptable” and agreed that the central bank has the power to remove directors.
“We are certainly prepared to take enforcement action if it proves appropriate,” Yellen said, adding that it is the Federal Reserve’s job to understand and investigate the root cause of the Wells Fargo board’s failures.
Warren responded by saying that unless something is done to hold directors accountable, other bad actors will emerge.
“Time after time big banks cheat customers and no actual human beings are held accountable,” Warren said. “Nothing is going to change at big banks fi that doesn’t change.”
Steps Already Taken
Yellen told the Banking Committee that Wells has already taken a number of actions in response to the fake account fiasco.
The top executive at the bank has “retired,” other executives have departed, and many have lost bonuses.
Additionally, as detailed in the Wells Fargo April’s 113-page report [PDF], the board announced it would take back another $75 million in compensation paid to retired CEO John Stumpf and former head of retail banking Carrie Tolstedt. Specifically, it would claw back an addition $47 million from Tolstedt and $28 million from Stumpf. Previously, Stumpf lost $41 million and Tolstedt $19 million in vested options and equity awards.
According to the Board, it has also taken away $180 million in stock and bonuses that were previously spilt between several former and current executives. In March, Wells said it wouldn’t pay about $32 million in cash bonuses and equity to new CEO Tim Sloan and seven other top executives.