Fed sanctions Wells Fargo; bitcoin ban builds

Register now

Receiving Wide Coverage
Growth ban: The Federal Reserve put the hammer down on Wells Fargo in response to its 2016 phony-accounts scandal and other problems placing unprecedented restraints on the bank by prohibiting it from increasing its assets beyond its yearend 2017 total of $1.95 trillion. The bank also said it will replace four members of its board of directors. The bank said the action will reduce its 2018 after-tax profit by $300 million to $400 million. For a full account of what it means for banks, American Banker's got you covered. Otherwise, the other guys wrote about it, too. Read on ...

“The Fed has never before imposed such a broad, companywide growth restriction as part of an enforcement action,” the Wall Street Journal says. “The Fed imposed the penalties after officials concluded Wells Fargo had been growing without proper risk controls in place.”

The bank will likely have to “turn away billions of dollars of deposits” in order to meet the Fed’s growth restriction, the Financial Times says.

That “means that one of the country’s largest and most powerful financial institutions will be unable to keep pace with its fast-growing rivals,” the New York Times adds.

The Fed’s action “sent a message that boards of directors, not just management, will be held accountable when big banks fail to manage risks,” the Journal says.

“The Fed just put the fear of God into bank boardrooms across the country,” said one analyst. “And that’s exactly what it wants to do.” American Banker, Wall Street Journal, New York Times, Washington Post

The Fed’s action against Wells Fargo occurred on Janet Yellen’s last day as Fed chair. Wall Street Journal, Washington Post, American Banker

Now the Jerome Powell era begins. He takes over just as the bond and stock markets are starting to correct due to higher inflation and interest rates. Wall Street Journal, New York Times

Wells Fargo’s punishment occurs at the same time that rival Quicken Loans has replaced the bank as the top U.S. retail mortgage lender. “Quicken’s capture of the top spot epitomizes a trend that has been playing out for years: alternative groups have rushed to fill a gap in mortgages after the subprime disaster forced banks to retreat,” the FT says.

Wall Street Journal
No charge: Three more large credit card issuers — Citigroup, JPMorgan Chase and Bank of America — have joined the growing number of banks that will no longer permit customers to buy bitcoin with their cards. The decisions were announced in the wake of the recent freefall in bitcoin prices. “One of the biggest concerns for banks is that bitcoin purchases will push up their card losses,” the paper notes. “That includes cardholders who don’t pay their bills when the price of bitcoin falls below what they paid to buy it with the card.”

Sorry, we’re closed: Banks closed more than 1,700 branches in the 12 months ended June 2017, the biggest decline on record, “as they leave less profitable regions and fewer customers use tellers for routine transactions.”

Don’t fret: Senior JPMorgan Chase officials, including CEO Jamie Dimon, have had to reach out to their investment banking clients in the health care business amid “consternation” about last week’s announcement by the bank that it is joining with the Amazon and Berkshire Hathaway to create a health care company to try to reduce costs for their employees. The plan “sparked concern that it could siphon business from existing health-care players.”

Financial Times
Even playing field: Big European banks want technology and social media companies to be subject to some of the same regulations as banks, as those companies begin offering financial services products to their customers. “Authorities [need] to bring order to this massive change” that could “pose risks to financial stability,” Francisco González, executive chairman of Spanish bank BBVA, said. “If I need capital to lend then let’s have the same rules for everyone — for the internet giants too.”

“We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again.” — Former Federal Reserve Chair Janet Yellen.

For reprint and licensing requests for this article, click here.