Historic Federal Reserve Restrictions on Wells Fargo

February 5, 2018

This is what effective regulation looks like!!!
The BrokeandBroker.com Blog reprints below the
Federal Reserve Press Release
restricting Wells Fargo's growth


Responding to recent and widespread consumer abuses and other compliance breakdowns by Wells Fargo, the Federal Reserve Board on Friday announced that it would restrict the growth of the firm until it sufficiently improves its governance and controls. Concurrently with the Board's action, Wells Fargo will replace three current board members by April and a fourth board member by the end of the year.

In addition to the growth restriction, the Board's consent cease and desist order with Wells Fargo requires the firm to improve its governance and risk management processes, including strengthening the effectiveness of oversight by its board of directors. Until the firm makes sufficient improvements, it will be restricted from growing any larger than its total asset size as of the end of 2017. The Board required each current director to sign the cease and desist order.

"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," Chair Janet L. Yellen said. "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."

In recent years, Wells Fargo pursued a business strategy that prioritized its overall growth without ensuring appropriate management of all key risks. The firm did not have an effective firm-wide risk management framework in place that covered all key risks. This prevented the proper escalation of serious compliance breakdowns to the board of directors.

The Board's action will restrict Wells Fargo's growth until its governance and risk management sufficiently improves but will not require the firm to cease current activities, including accepting customer deposits or making consumer loans.

Emphasizing the need for improved director oversight of the firm, the Board has sent letters to each current Wells Fargo board member confirming that the firm's board of directors, during the period of compliance breakdowns, did not meet supervisory expectations. Letters were also sent to former Chairman and Chief Executive Officer John Stumpf and past lead independent director Stephen Sanger stating that their performance in those roles, in particular, did not meet the Federal Reserve's expectations. . . .

In the Matter of Wells Fargo & Company (Federal Reserve Docket No. 18-007-B-HC):


Limits on Growth
5. (a) As of the last day of the first full calendar quarter following the date of this Order and the last day of each quarter thereafter, WFC shall not, without the prior written approval of the Reserve Bank, with the concurrence of the Director of the Division of Supervision and Regulation, take any action that would cause the average of WFC's total consolidated assets reported in line 5 of Schedule HC-K to the form FR Y-9C (Consolidated Financial Statements for Holding Companies) for the current calendar quarter and the immediate preceding calendar quarter to exceed the total consolidated assets reported as of December 31, 2017, in line 12 of Schedule HC to the form FR Y-9C (Consolidated Financial Statements for Holding Companies).


The board of directors must take further steps to ensure that senior management establishes and maintains an effective risk management structure that has sufficient stature, authority, and resources; is independent of business lines; and is commensurate with the firm's size, complexity, and risk profile. The firm's lack of effective oversight and control of compliance and operational risks contributed in material ways to the substantial harm suffered by WFC's customers. Specifically, the board of directors must take steps to improve reporting from senior management. As the April 10, 2017, Sales Practices Investigation Report (commissioned by the independent directors of the board) noted, starting in February 2014 and continuing thereafter, the board and certain committees of the board received from management assurances that Corporate Risk, Human Resources, and the Community Bank were undertaking enhanced monitoring of sales practice misconduct and were addressing sales practice abuses. Management's reports, however, generally lacked detail and were not accompanied by concrete action plans and metrics to track plan performance. The board should have received more detailed and concrete plans from senior management on such a critical issue.


The Federal Reserve Board has been troubled by the sales practice abuses at WFC, and the ongoing disclosures of misconduct in other areas. A lead independent director is appointed to serve the interests of the firm and, to that end, provide an alternative view of, and (when necessary) check on, executive directors of the board and the management of the firm. Your performance in that role is an example of ineffective oversight that is not consistent with the Federal Reserve's expectations for a firm of WFC's size and scope of operations.


The Federal Reserve Board has been troubled by the sales practice abuses at WFC, and the ongoing disclosures of misconduct in other areas. In particular, your performance in addressing these problems is an example of ineffective oversight that is not consistent with the Federal Reserve's expectations for a firm of WFC's size and scope of operations.


Wells Fargo's Stumpf Stumbles And FINRA Fumbles (BrokeAndBroker.com Blog, September 21, 2016) http://www.brokeandbroker.com/3252/finra-wells-fargo-atm/

New FINRA Bosses

About one week before FINRA's ill-fated announcement about Mack's nomination, the self regulator issued "FINRA Announces CEO Transition" (Press Release, June 13, 2016), in which the organization announced the appointment of new Chief Executive Officer Robert W. Cook. Thereafter, about a month afterwards, FINRA issued "John J. Brennan Elected Chairman of FINRA Board of Governors" (Press Release, July 15, 2016), in which the organization announced that it had elected John J. "Jack" Brennan, Vanguard Group Chairman Emeritus and Senior Advisor, as FINRA Chairman effective Aug. 15, 2016.

Consequently, we cannot place the blame for FINRA's horrific sense of timing and choice concerning Mack's nomination to the Board at the feet of the regulator's newly announced CEO Cook  and Chair Brennan because they had not officially taken over their respective helms. The challenge for Cook and Brennan is prospective: how they respond to the Wells Fargo developments, what lessons they learn from their organization's nomination of the troubled Wells Fargo's retail chief to the Board, and how the self-regulatory organization moves forward with the implementation of enhanced oversight of its large firms.

Recently, I was advised the DoJ is concluding its investigation of Wells Fargo consumer
financial fraud cases without taking action. As a federal investigator involved in three of
those cases, there was every reason to believe the DoJ and its Grand Jury would find
reason to pursue not only the investigation of Wells Fargo, but to expand that
investigation to include the Occupational Safety and Health Administration (OSHA),
whose Whistleblower Protection Program (WBPP) played a significant role in concealing
that fraud for several years. For reasons cited below, I strongly urge the DOJ to
reconsider and reopen the investigation and look more broadly at the critical role federal agencies played in enabling the fraud to continue for years and engulf millions of Wells Fargo customers, and thousands of Wells Fargo employees.