Banking: Wells Fargo hit with cap on growth
Wells Fargo was slapped with an unusually harsh penalty last week, as the Federal Reserve ordered the bank to “cap its growth and improve its corporate governance,” said James Rufus Koren in the Los Angeles Times. The central bank’s punishment followed revelations that Wells Fargo had deceived many of its customers by opening dummy accounts in their names and forced others to take out unnecessary auto insurance. The penalty, which came on the final day of Janet Yellen’s tenure as chair of the central bank, specified that the bank’s balance sheet will not be allowed to grow past its current $1.95 trillion until Wells convinces authorities it has reformed its practices. The bank also announced it would replace four board members this year.
The sanctions, “called unprecedented by Fed officials,” sent a shudder through the wider banking industry, said Laura Keller and Shahien Nasiripour in Bloomberg.com. While the Fed has frequently penalized banks for misconduct, it had not previously imposed strict limits on a major bank’s growth. The question banks are now asking themselves is whether the move “reflects how the Fed will do business going forward, or if it’s the capstone of a more aggressive enforcement posture that could now start receding.”