WASHINGTON — Federal Reserve Chair Janet Yellen strongly hinted that more regulatory penalties against Wells Fargo may be forthcoming related to its phony-accounts scandal, saying its activities were beyond the pale.
“Let me say that I consider the behavior of Wells Fargo toward its customers to have been egregious and unacceptable,” Yellen said during a press conference Wednesday. “We take our supervision responsibilities of the company very seriously. And we are attempting to understand what the root causes of those problems are and to address them.”
Yellen added that she could not discuss the details of the Fed’s investigation or what actions it may take in the future because it is confidential supervisory information. But she said the Fed is “committed to taking the actions we regard as necessary and appropriate to make sure the right set of controls are in place in that organization.”
Yellen’s remarks build on earlier criticism she lobbed at the bank, which was discovered to have a widespread scandal, with bank employees creating new accounts for existing customers without their knowledge. The issues led to $190 million in fines and restitution by federal regulators last year and a public relations headache for the bank, causing the ouster of its CEO and a more recent shake-up of its board of directors.
Yellen said during her testimony in the Senate Banking Committee in July that the Fed and other regulators are conducting their own investigation of Wells and that it could lead to additional penalties against the bank. Panel member Elizabeth Warren, D-Mass., has called on the Fed to fire all members of Wells’ board who were present during the scandal, though Yellen has maintained that she has no predetermined outcomes in mind.
During the press conference, Yellen sidestepped another question about whether the massive data breach at the credit reporting bureau Equifax could lead to a designation of those companies as systemically important financial institutions or financial market utilities by the Financial Stability Oversight Council, thus subjecting them to heightened prudential requirements.
Yellen instead said that the Fed is making sure that banks under its purview don’t let the breach “contaminate” existing credit information about their customers and have appropriate cybersecurity controls in place.
“Through our supervision, we are working with the banks that we supervise to make sure that they take appropriate action with respect to their businesses processes in light of" the breach, Yellen said. “More generally, it points to the importance of strong cybersecurity controls and attention to cybersecurity risks, which we do see as one of the most significant risks to the financial sector.”
Yellen’s comments came at the conclusion of the regular meeting of the Fed’s Federal Open Market Committee on Wednesday. The FOMC announced that it would begin to initiate a reduction of its balance sheet next month by setting caps on the reinvestment of principal payments from the Fed’s balance sheet.
The plan calls for the roll-off of $6 billion in Treasury securities and $4 billion in mortgage-backed securities per month through December, followed by gradually increasing caps every three months until October 2018, at which time the caps will reach $30 billion per month in Treasuries and $20 billion per month in mortgage-backed securities.
The caps are meant to gradually reduce the Fed’s $4.5 trillion balance sheet, though where the reductions will stop remains uncertain. Yellen said before the House Financial Service Committee recently that she expects the final balance sheet value to be “appreciably below recent levels, but larger than before the financial crisis.” The Fed’s balance sheet before 2008 was less than $900 billion.
The FOMC followed through on market expectations to maintain the federal funds rate at between 1% and 1.25%. A whopping 11 members of the 16-member rate-setting committee said they expected another 25-basis-point increase in Fed rates by the end of the year, heightening expectations that that increase will occur at the committee’s December meeting.
Economic projections were slightly revised from the June meeting, with the committee estimating GDP growth at 2.4%, up from 2.2% in June. Inflation projections were revised downward, however, to 1.5% from a 1.7% estimate in June. The FOMC has repeatedly said that it is looking for at least 2% inflation for rates to climb, though inflation has remained stubbornly below that level.