The Wells Fargo CEO got a good whuppin’ yesterday. The Senators each took their turn striving for the lead quote in the evening news.
As usual, the comments on Twitter are entertaining. Deep thoughts range from wanting to throw all the bankers in jail to one person lauding one senator for having personally discovered and exposed the fake account fiasco. Really. One of the senators found this mess.
If your knowledge of Cold War history extends to knowing what a show trial is, ponder the visuals and theatrics of the hearing. As I browsed through my twitter feed looking at the linked photos, show trial is what came to mind.
9/20 – Wall Street Journal – Whipping Wells Fargo / The bank blundered, and the politicians will make it pay – Editorial provides valuable perspective. Opening paragraph brings together multiple ideas, which I’ll quote under fair use:
Wells Fargo CEO John Stumpf learned the main lesson of post-Dodd-Frank American finance on Tuesday as he absorbed abuse from U.S. Senators. Bankers work for the government, and they better realize that any mistake will be punished accordingly.
The regulations on banks are now at the level where they are as severely regulated as utilities. De facto lesson from the new laws and the public abuse is that banks must walk a narrow line, and if they step out of line, they will be publicly flogged.
Next few paragraph helps us understand the hearings on Tuesday. The Senators need to rationalize and justify the regulatory burden while avoiding the question of why the new oversight agency did not start to address the issue until settlement negotiations were already underway between the bank and the LA city attorney.
It is as if after a bank robbery was solved, the suspects apprehended, the whole gang cooling their heels in jail, with plea negotiations already underway, the state police arrive at the bank branch to start their investigation after having just learned the bank was robbed. Then the state legislators call hearings to laud the state police. After all the work has been done by the local police and DA, the legislators call a press conference to brag on the wonderful work done at the state level.
Editorial points out the federal regulators did nothing other than take the biggest chunk of the fine.
Some detail background, which is quite helpful for context:
Editorial brings to the table that there are around 100,000 staff who work in the retail operations of the bank. With around 5,300 people fired for opening invalid accounts over the course of 5 years, that means there were somewhere around 1,000 people fired each year. That would be firing about 1% of the staff in retail per year.
Investigation by PwC indicates there were about 82M deposit accounts opened in five years of which about 1.5M were assessed as likely/probably improper. That is about 1.8% of new accounts that were inappropriate.
The breach of trust is severe but the impact on customers doesn’t appear to be huge. Fees of around $2.2M would be somewhere in the range of under $2 on average. For many customers the cost was zero yet for others the impact is large because NSF fees were incurred because checks were written on money that was moved without their knowledge or permission.
The bank will start looking at activity before 2011 to see if the fake account mess carried back further.
9/20 – Wall Street Journal – Wells Fargo CEO Testifies Before Senate Banking Committee – The Senators all took their turn flailing the bank and its CEO. Quite a few had cool one-liners.
Article describes this as one of the harshest hearings since the banking crisis.
It appears there wasn’t any new information of substance that came from the hearing. The CEO apologized repeatedly. He was repeatedly berated for not doing enough to fix the problem and otherwise take steps that the Senators now think he should have taken.
9/20 – Wall Street Journal – Regulators Take Heat Over Wells Fargo – Some Senators wondered where the CFPB and OCC have been for the last five years. Questions raised ponder whether CFPB had much of a role, if any, in finding the problem.
Same senator wondered if other banks have the same pressure to open accounts. The CFPB director promised he will take a look. His comments are future tense, so a reasonable followup question might have been whether that thought had previously crossed his mind.
9/20 – Washington Post – Wells Fargo CEO pummeled on Capitol Hill over multiyear scam – The CEO got beat up for two hours in the Senate hearing. Visible in this article is Senators looking for the most quotable line.
New information to me is that the CEO knew of this fake account problem back in 2013.