Democrats are praising former Federal Reserve Board Chair Janet Yellen’s actions against Wells Fargo & Co. and questioning whether the Fed will continue to be as tough now that she has left the central bank.
The Fed’s cease-and-desist order released Friday evening, on Yellen’s final day as chairwoman, restricts the nation’s third-largest bank to the $1.95 trillion in total consolidated assets it had at the end of 2017, a move the company estimates will cut its earnings this year by between $300 million and $400 million. The company had a net income of $22.2 billion in 2017.
“This action to punish Wells Fargo’s scams against consumers is a good step, but long overdue,” Senate Banking ranking member Sherrod Brown said in a statement. “Scandals at Wells Fargo demonstrate why Congress and the new leadership at the Fed shouldn’t weaken the rules for Wall Street.”
Wells Fargo will have its growth restricted until “it sufficiently improves its governance and controls,” the Fed said.
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The bank has been under intense scrutiny since the September 2016 announcement that it had fraudulently created as many as 2 million unauthorized bank and credit card accounts and would pay $185 million in fines. The number of fraudulent accounts later increased to 3.5 million.
The Fed action sets the stage for a House Financial Services Committee hearing Tuesday with Treasury Secretary Steven Mnuchin, who is expected to have to defend the regulatory rollbacks to the 2010 Dodd-Frank financial overhaul that he and congressional Republicans favor in light of Wells Fargo’s transgressions.
Wells Fargo “will be a focal point” of the hearing, with Democrats expected to use the bank as an example of why Dodd-Frank should not be amended, according to Brian Gardner, an analyst at Keefe, Bruyette & Woods, an investment bank with headquarters in Washington that specializes in the financial services sector.
Jerome Powell, confirmed by the Senate last month, was sworn in Monday as the new Fed chairman, replacing Yellen, whose term had expired. Randal Quarles became the Fed’s vice chairman of supervision in October. Both Powell and Quarles have said they want to loosen some of the requirements of Dodd-Frank, particularly as they pertain to all but the nation’s largest banks.
Sen. Elizabeth Warren applauded Yellen’s last major action as chairwoman and criticized President Donald Trump for filling “our top economic jobs with people obsessed with sucking up to Wall Street.” In a tweet, the Massachusetts Democrat wrote that Yellen’s “replacement will face a choice: show the same kind of courage — or own the next financial crisis.”
House Financial Services ranking member Maxine Waters applauded both the growth restriction and the requirement that Wells Fargo replace four board members.
“Since 2016, I have been calling for Wells Fargo to face real penalties such as these,” the California Democrat said in a statement. “Such action is warranted and necessary in light of the bank’s many misdeeds.”
Wells Fargo CEO Timothy J. Sloan said in a conference call that operating with the asset cap of $1.95 trillion is “manageable,” that the bank would present an oversight and governance improvement plan to the Fed within 60 days, and that he hopes to have the plan adopted by Sept. 30 and to satisfy the Fed’s requirements “as quickly as possible.”