Senator Warren Questions Janet Yellen on Wells Fargo Fake Accounts Scandal

Thank you, Mr. Chair. It's good to see you again, Chair Yellen. I want to follow up on the letter I sent you last month urging the Fed to remove the Wells Fargo Board members who served during the bank's fake accounts scandal and I appreciate the response you sent me earlier this week which acknowledges that you have legal authority to remove these board members and that confirms that you're willing to use that authority if it is warranted and that's the question I want to get at today. How could removal of these board members not be warranted given the facts that we already know. The 2008 financial crisis showed that the big banks had completely inadequate risk management systems and after the crash the Fed established tough new rules for risk management. Those rules imposed higher risk management standards on bigger and more complex institutions which means that Wells Fargo by law had to meet a very high standard. So let's lay this out. The Wells Fargo Board of Directors is ultimately responsible for risk management at the bank -- is that right, Chair Yellen? That is a responsibility. Good. So the board is responsible and here's what they're responsible for under the Fed's own regulations -- making sure that there are "processes and systems to integrate risk management with management goals in its compensation structure" and making sure there are "processes and systems for ensuring effective and timely implementation of actions to address emerging risk." Now Wells Fargo didn't come close to meeting those requirements. They established impossible cross-selling goals and set up a compensation structure that put enormous pressure on employees to open accounts new accounts for existing customers. And despite a mountain of evidence that these incentives were leading to the creation of fake accounts, the board did nothing for years. The result was thousands of employees opening more than 2 million fake accounts. So can you explain to me how the Wells Board can possibly have satisfied its obligations under the Fed's risk management regulations? So I'm not prepared to discuss in detail what is confidential supervisory matter. I will say that the behavior that we saw was egregious and unacceptable and it is our job to understand what the root causes were of those failures and as I've agreed we do have the power if it proves appropriate to remove directors. A number of actions have already been taken and we need to conduct a thorough investigation to look at the full record to understand the root causes of the problems and we are certainly prepared to take enforcement actions if those prove to be appropriate. Well I appreciate that, Chair Yellen, because we already know a lot that's just in the public record and that Wells itself has already admitted to and that in fact Wells Fargo's own board commissioned an investigation by the law firm Sherman and Sterling and found that the board was far too deferential to Wells executives on risk management issues and ignored several red flags about the scope of the fake account scandal so there's already a lot out there in public and here's what worries me. Time after time they banks cheat their customers and no actual human beings are held accountable. Instead there's a fine which ultimately is paid for by shareholders -- not by executives -- and certainly not by directors of the board and nothing's going to change at these big banks if that doesn't change. How I know that for a fact is because in 2011 the Fed fined Wells Fargo $85 million dollars for illegally steering mortgage borrowers into costlier loans -- and the Fed specifically said those illegal practices were caused by "incentive compensation and sales quota programs and the lack of adequate controls to manage the risks resulting from these programs." So the Fed fined Wells [Fargo] in 2011 for failing to manage the risks resulting from bad incentive compensation practices and what did Wells do for the next four years immediately after that fine the board signed off on incentive compensation practices that led to the creation of two million fake accounts. Fines are not working with these giant financial institutions. If bank directors who preside over the firing of thousands of employees for creating millions of fake accounts can keep their jobs then I think every bank director in this country knows that they are bulletproof and that poses a danger to the rest of us every single day. You have the power to change the culture on Wall Street. I know you care about this issue. I hope you will use that power.

Channel: Senator Elizabeth Warren

Views: 138,096

Rating: 4.8492899 out of 5

Keywords: banking, senate, janet yellen, wells fargo, elizabeth warren, risk management, regulation, fake accounts, scandal

Id: kdyESEJT_QA

Length: 5min 54sec (354 seconds)

Published: Fri Jul 14 2017