Receiving Wide Coverage ...
Another day, another woe: The pressure on Wells Fargo continues to increase. Eight Democrat senators Thursday asked the Labor Department to open an investigation into the bank's workplace practices. Specifically, the senators, led by Elizabeth Warren, D-Mass., asked the department's Wage and Hour Division to examine whether Wells "aggressively skirted" overtime laws and failed to properly compensate its lower-level employees. Labor said it was taking "very seriously" complaints about how the bank may have treated its employees.
Wells Fargo CEO John Stumpf resigned on Thursday – no, not from that job. Stumpf stepped down as one of 12 banking industry representatives on the Federal Advisory Council, which provides insight to the Fed's board of governors on economic, monetary and financial issues. Stumpf was the industry's representative for the Fed's San Francisco district, the largest in the country. He resigned shortly after five senators – again including Warren – asked that he not be reappointed to a third one-year term.
Should directors of Wells Fargo – who, like members of other corporate boards – are generally well insulated from financial liability in their duties – be worried about any personal liability stemming from the phony accounts scandal? Yes, says Ronald Barusch, the Wall Street Journal's Dealpolitik columnist. "Generally, Delaware (where Wells Fargo is incorporated) provides almost universal protection from financial liability for directors," he writes. "But corporate law is nuanced and some Delaware cases have specifically addressed how directors can be liable for a company's legal missteps." Indeed, with 5,300 Wells employees fired in the scandal, there was clearly a systemic problem. Which raises the question, where were the directors?
New York Times columnist James B. Stewart says the Wells scandal may be the perfect case to test tough new guidelines for federal prosecutors, issued by the Justice Department last year. "One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing," state the guidelines, issued by Deputy Attorney General Sally Quillian Yates. "We should really hold the Department of Justice's feet to the fire here," John C. Coffee Jr., a professor at Columbia Law School, told Stewart. "Will they pursue individuals and not just the underlings?" But actually convicting high-ranking executives of a crime won't be easy, Stewart notes "as the government's poor record with post financial-crisis mortgage fraud cases has demonstrated."
John G. Taft, former CEO of the Royal Bank of Canada's wealth management unit in the U.S. and a former chairman of the Securities Industry and Financial Markets Association, says he would ban the phrase "cross-sell" if it was up to him in order to stop future abuses like the one at Wells Fargo. "Any time a financial institution talks about the investments, services and advice it offers as 'products' that can be sold and cross-sold to customers, trouble isn't far behind," he writes in the New York Times. "The phrase 'cross-selling' is all about profitability, not about meeting client needs. Cross-selling has no place in the fiduciary era."
American Banker's coverage includes articles about calls for splitting the CEO and chairman roles, why Wells has been unable to contain the critics, and a BankThink article that looks at the Fed and how it polices cross-selling.
Too many banks: European Central Bank President Mario Draghi, whose below-zero interest rate policies have been heavily criticized by banks for making it harder for them to make a profit, said part of the problem is the banks' own fault: namely, there are too many of them. "Low interest rates tend to squeeze net interest margins owing to downward rigidity in banks' deposit rates," he admitted. "But over-banking is also a factor in the current low level of bank profitability. Overcapacity in some national banking sectors, and the ensuing intensity of competition, exacerbates this squeeze on margins." There are 5,192 credit institutions in the euro area, according to the ECB. Draghi said other ECB policies have helped banks. "Profitability is boosted by a greater flow of lending and lower loan loss provisions than would have occurred in the absence of accommodative monetary policy," he said. Wall Street Journal, Financial Times
Wall Street Journal
Building a sandbox: A top Republican on the House Financial Services Committee introduced a bill that would replicate the U.K.'s "sandbox" approach to help financial technology startups. The bill, sponsored by Rep. Patrick McHenry, R-N.C., would require federal agencies, including the Fed, the Treasury Department and the SEC, to develop an internal financial services innovation office where companies could seek help in testing a product without going through the full regulatory process. "This [bill] would, in many ways, force regulators to be much more attuned to what's happening in the marketplace," McHenry said.
Let's trade: IBM announced a partnership with China UnionPay to create an exchange run by blockchain technology that would allow bank customers to swap bonus points in different loyalty programs. The two partners say creating such an exchange is only possible because of blockchain and that using conventional technology would be prohibitively complex and expensive. "Blockchain embeds trust into transactions. This along with similar innovations under way using blockchain will positively change the future of the finance industry," said He Shuo, director of China UnionPay's Electronic Payment Research Institute.