The scandal involving Wells Fargo & Co. that surfaced last year shows the U.S. banking industry still has work to do on improving its culture, Federal Reserve Bank of New York President William Dudley said.
“Like mortgage brokers in the early 2000s, it appears that job security depended almost exclusively on meeting targets, regardless of how those targets were met,” Dudley said Tuesday in remarks prepared for a speech in London. “There was a serious mismatch between the values Wells Fargo espoused and the incentives that Wells Fargo employed.”
Revelations that Wells Fargo employees may have opened more than 2 million deposit and credit-card accounts without customers’ permission led to the resignation of former Chief Executive Officer John Stumpf, as well as the firing or demoting of other senior managers and changes to employee incentive systems.
The bank also eliminated a system of sales targets that regulators said encouraged workers to create fake accounts.
“Investigations into what happened at Wells Fargo are continuing, so I will wait before drawing more definitive conclusions,” Dudley said. “For now, though, it is sufficient to note the powerful role — for good or for bad — that incentives can play in an organization.”
“Members of the industry must be good stewards and should seek to make progress on reforming culture in the near term,” he added.
Speaking at a forum hosted by the U.K.’s Banking Standards Board, Dudley didn’t discuss his outlook on economic conditions or monetary policy in the prepared remarks.