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Wells Fargo to Replace Four Board Members After Fed Censure Wells Fargo to Replace Four Board Members After Fed Censure
(35 minutes later)
The Federal Reserve on Friday ordered Wells Fargo to replace four board members and limit its growth until the bank significantly improved its business practices. The Federal Reserve on Friday imposed unusually harsh penalties on Wells Fargo, punishing it for years of misconduct and barring it from future growth until it fixes its problems.
The action by the Fed follows revelations over the last two years that the bank had manipulated and deceived its customers by opening dummy accounts in their names and forcing them to take out unnecessary auto insurance. The Fed said the bank will replace four members of its 16-person board of directors by the end of the year, as part of an unusually direct and forceful action by the federal government over the affairs of a large company.
The Federal Reserve, which oversees the San Francisco-based bank, said in an announcement that Wells Fargo needed to overhaul its risk management and strengthen its boards oversight as well. The move by the Fed follows revelations over the last two years that the bank had manipulated and deceived its customers by opening dummy accounts in their names and forcing some to take out unnecessary auto insurance.
The Federal Reserve, which oversees the San Francisco-based bank, said in an announcement that Wells Fargo needed to overhaul its risk management and strengthen its board oversight as well.
“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,” it said in a release posted on its website.“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,” it said in a release posted on its website.
The Fed’s action, taking place on Janet Yellen’s last working day as the central bank’s chairman, is virtually unprecedented. The Fed’s banking regulators have routinely penalized banks for misconduct, but it has rarely imposed strict limits on a major bank’s growth.
The action is all the more extraordinary because it comes at a time when federal banking regulators in the Trump administration are working vigorously to relax rules that were imposed in the years following the financial crisis. President Trump and his advisers argue that regulators have gone too far in curbing banks’ activities.
Mr. Trump, however, has taken specific aim at Wells Fargo as a rogue institution. He wrote on Twitter in December that penalties against the bank “will be pursued and, if anything, substantially increased. I will cut Regs but make penalties severe when caught cheating!”
Wells Fargo’s chief executive, Timothy J. Sloan, said: “We take this order seriously and are focused on addressing all of the Federal Reserve’s concerns.” He said the Fed’s actions related to old conduct that the bank was already taking steps to fix and that it did not affect the bank’s financial condition.
The company said it would submit a plan to the Fed within 60 days for improving its board oversight and risk management practices. It will also submit to an independent third party review.
The Fed’s action Friday stunned industry observers and sent Wells Fargo’s shares down sharply in after-hours trading.
“I don’t remember the last time the board has ever done anything quite as dramatic as that,” said Evan Stewart, a regulatory lawyer at the law firm Cohen and Gresser, referring to the Federal Reserve Board. “It’s really quite a dramatic intervention by the major federal regulatory agency in the governance of a major bank.”
For years, Wells Fargo was the toast of the United States banking industry. It was showered with awards and praise for appearing to perfect the art of “cross selling,” in which it found creative new ways to peddle financial products to its existing customers. The bank’s savvy management of risk allowed it to avoid the worst of the financial crisis.
While others retrenched, Wells Fargo substantially expanded, snapping up ailing North Carolina lender Wachovia, in late 2008. That acquisition was engineered in part by federal regulators, who viewed Wells as one of the country’s strongest, best run institutions.
That reputation has crumbled recently, though. Wells Fargo was found by regulators to have systematically created fake customer accounts and misled customers and government officials.
One of Wells Fargo’s primary regulators, the Office of the Comptroller of the Currency, slapped significant restrictions on the bank last year, when it gave it a failing score on a key community lending metric. The low grade meant that Wells Fargo would need to clear extra hurdles to open new branches or otherwise expand its retail banking business.
The board has already undergone a makeover in the wake of the scandal.
Wells Fargo’s current board chairwoman, Elizabeth A. Duke, took on the position last month, replacing Stephen W. Sanger, a 13-year board member who retired after a year filled with scandals. Two other longtime directors departed at the end of last year.