Editor’s note: This interview first appeared in Human Capital, a newsletter by Washington Bureau Chief Melanie Waddell about the people who shape the financial regulatory space. Melanie writes in the latest installment:
The big Dodd-Frank rollback bill intended to deregulate the banking industry, S. 2155, the Economic Growth, Regulatory Relief and Consumer Protection Act, is set to be voted on this week by the Senate.
New Federal Reserve Board Chairman Jerome Powell offered support of the bill in his Senate testimony last week, stating that he didn’t see it imposing risks to the financial system. But the bill is not without its detractors.
But Sen. Elizabeth Warren, D-Mass., took Powell to task on how steadfast he’d be in following through on the Fed’s recent sanctioning of troubled Wells Fargo.
Warren Grills Powell on Wells Fargo Crackdown
Former Federal Reserve Board Chair Janet Yellen, on her last day in January, put the chokehold on the beleaguered Wells Fargo by stating that it could not grow until the bank cleaned up its appalling customer service track record and compliance snafus. In what Yellen dubbed an “enforcement action,” she said the Fed measure “will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers.” The Fed, Yellen said, can’t allow “pervasive and persistent misconduct at any bank.”
Jerome Powell, Yellen’s successor, who was sworn in in early February and is a former Fed governor, is seen as supporting the Trump administration’s deregulatory agenda.
Wells Fargo’s wealth management division has become the latest division to come under fire for customer service infractions, with concerns being raised about overcharges and incorrect fees charged for some fiduciary and custody accounts.
In their back and forth during Powell’s Senate testimony Thursday, Warren sought assurance from Powell that he would follow through on Yellen’s multi-pronged plan: to ensure that four additional Wells Fargo board members are replaced by year-end; that Wells submit two plans by early April—one on improving the effectiveness of the board and one on improving the board’s risk management practices; and that an independent third party review Wells’ implementation of the plans by the end of September.
With the Wells action, the Fed “sent a really powerful message to big banks that there could be real consequences, including consequences for senior officials if they break the law,” said Warren. “But that message will be lost if the Fed does not enforce the order strictly and show the public and the banking industry that they mean business.”
Warren queried Powell as to whether the Fed board would “vote on the two plans” to be submitted by Wells in April.
Powell’s response: “We have delegated that to the head of supervision.”
“To staff?” Warren shot back.
“I will assure you that [vote] will take place in serious consultation with the board,” Powell replied.
“Consultation?” Warren retorted. “But the board is not going to vote on this?”
Powell’s response: “That’s not the plan.”
Staff “is not good enough,” Warren challenged. “Fed Board members are supposed to make the big decisions, and Fed board members are supposed to be accountable for these decisions,” she continued, probing Powell on whether he’d consider requiring a vote of the Fed board before the plans are approved. His response: “Yes.”
Warren also asked the Fed chairman to “commit” to making the third-party independent review of Wells’ progress public. “I think the public deserves a chance to understand how Wells is working to fix the mistakes it has committed,” she said.
While Powell said he couldn’t commit to such a public disclosure, he’d consider doing so if there’s “a way to do it that’s faithful to our obligations and our practices.”
Quoting the enforcement order, Warren stated that the growth restriction remains in effect until Wells Fargo “adopts and implements the plans that were approved” by the Fed.
To lift the growth restriction, the Fed “needs to see that the plans have been fully implemented, right? It’s not enough that Wells has taken some preliminary steps toward implementing the plans. Is that right?” Warren asked.
Replied Powell: “No. I don’t think that is right. I think the thought was that … once we’ve approved the plans and they [Wells Fargo] begin to implement them and we see them on track, the growth restriction could then be addressed.”
But, countered Warren: “How much progress along that line is enough?”
The Fed will “have to be assured that the company is making really significant measures and suffered a significant period of growth cap,” Powell said. “We will not lightly lift it.”