Wells Fargo Bank, N.A., is a large federally chartered depository bank. It is a subsidiary of Wells Fargo and Company, a bank holding company (hereinafter, Wells Fargo or the bank). Wells Fargo is the fourth-largest bank in the United States with $1.9 trillion in assets at the end of 2019. In 2016, a scandal involving Wells Fargo creating fake accounts—which may have harmed more than 2 million consumers—increased scrutiny of the bank by Congress, financial regulators, and the public. Since this revelation, certain Wells Fargo business practices have continued to raise concerns relating to consumer protection and corporate governance, leading to additional congressional oversight and interest.
This In Focus provides a brief overview of federal regulation of Wells Fargo and a timeline of key events involving the company. It then discusses a few relevant policy issues, including consumer protection, corporate governance, and recent congressional oversight of the bank.
Overview of Regulation
Similar to other large banks, several federal financial regulators have overlapping oversight authority of Wells Fargo. Although the Office of the Comptroller of the Currency (OCC), Federal Reserve, and Federal Deposit Insurance Corporation (FDIC) each have safety and soundness authority, the OCC is the primary prudential regulator of Wells Fargo's bank subsidiary. The OCC regulates Wells Fargo's internal controls, its management of operational and reputational risks, and its deposit and lending activities. The Federal Reserve has authority over the bank holding company. The Consumer Financial Protection Bureau (CFPB) regulates and supervises Wells Fargo for consumer protection compliance.
Key Events
The following provides a timeline of selected events since the Wells Fargo fake accounts scandal broke.
2016
2017
2018
2019
2020
Consumer Protection
As a result of the various issues described above, federal regulators entered into multiple consent orders with the bank to address the harm to consumers and to strengthen Wells Fargo's consumer compliance risk management.
These consent orders required Wells Fargo to set aside funds to compensate harmed consumers. Some forms of financial harm caused by Wells Fargo may be relatively straightforward to identify, such as fees that individuals paid on unauthorized accounts. Other forms of harm, however, may be more difficult to identify and measure, like effects on a consumer's credit score.
As part of these consent orders, Wells Fargo has also agreed to take actions to improve the bank's consumer compliance risk management. In 2016, the bank agreed to undergo an independent consultant's review of its consumer compliance practices, including its sales practices, and develop a plan to improve its consumer compliance management. In 2018, as additional consumer protection concerns were revealed, the consent order required Wells Fargo to develop a robust enterprise-wide compliance risk management plan and perform an internal audit.
Corporate Governance
Wells Fargo is a publicly traded firm, which means that it must comply with securities laws and corporate governance rules from the SEC. A major component of corporate governance is the business environment created by the board of directors and senior management.
As a result of the events described above, some have raised issues with how Wells Fargo's senior leadership emphasized cross-selling products and meeting specific sales goals. Reportedly, employees felt pressure to sell unneeded products to customers and open unauthorized accounts due to an aggressive sales culture and performance management that focused on cross-selling. The report suggests Wells Fargo's decentralized corporate structure might have obscured the scale and nature of the underlying problems. This structure allowed parts of the bank to operate without oversight, impeding corporate risk management functions. A second area of concern is how late Wells Fargo disclosed to investors the potential damage to the bank from these events.
In addition to the departure of several key executives, to address concerns about the bank's corporate governance issues, the majority of the board members have been replaced.
Congressional Oversight
The various Wells Fargo developments highlight a number of issues for potential congressional oversight relating to the performance of federal financial regulators and banks that are considered "too big to fail." On the one hand, several regulators, such as the OCC and the CFPB, had supervisory authority over Wells Fargo, yet did not detect widespread fraudulent practices that occurred over an extended period of time. On the other hand, since 2016, the OCC, the CFPB, and the Federal Reserve have issued consent orders limiting the bank's growth and requiring it to make changes in its consumer protection and corporate governance practices. Critics continue to assert that regulatory enforcement measures against Wells Fargo have been too focused on assessing fines rather than on other measures, including breaking up the bank. Regulators also have increased their scrutiny of financial institutions' culture and compliance management practices for all examined institutions. Congress continues to examine issues surrounding Wells Fargo by holding hearings and taking testimony from Wells Fargo executives and from bank regulators.