The Federal Reserve’s latest crackdown on Wells Fargo is another blow for the bank, which has been dealing with its phony accounts scandal for nearly a year and a half.
But the parade of negative headlines following Friday’s announcement is hardly good news for any of the country’s largest financial institutions — which have tried to remain out of the spotlight since the financial crisis. Each time a big bank finds itself in trouble, it sets off another round of questions about whether these institutions are “too big to manage.”
While there’s a sense that the regulatory climate has improved for Wall Street with the election of President Trump — big banks are likely to catch a break with the eventual easing of mandates like the Volcker Rule — there’s still little political will when it comes to openly helping them. And with each major scandal, that position gets further ingrained.
“The public focus on bashing big banks has decreased, but I don’t think there’s any increased public affection — or political affection — for big banks,” said Brandon Barford, a partner at Beacon Policy Advisors.
It’s notable that the Senate’s regulatory relief package, spearheaded by Banking Committee Chairman Mike Crapo, R-Idaho, along with a handful of moderate Democrats, has marketed itself as focusing almost exclusively on helping community and regional banks.
Yet those on the left have still criticized the bill as a “bailout" for Wall Street — even if that’s not actually the case. Last week’s news is likely to further that narrative, although the bill does not appear to do anything to help the bank directly. Wells is “likely to become a bloody shirt in any campaign to derail the Crapo bill,” Brian Gardner, a policy analyst at Keefe, Bruyette & Woods said Monday in a note to clients.
Such complaints may not derail the legislation — or broader efforts to deregulate — but they do provide yet another distraction for those seeking change.
“I don’t think that this will change the overall narration in the medium or long term, but in the short term it can create conversations and hearings and media attention,” one senior financial services leader told me.
The problem is that the largest institutions seem to be rocked by one scandal after another: Before Wells there was the London Whale, HSBC’s massive money-laundering case, the Libor and foreign exchange scandals and the myriad of penalties stemming from behavior leading up to the crisis, including the sale of billions of dollars of toxic mortgage-backed securities.
Banking industry officials are often quick to note that many of these cases stem from bad behavior by one institution or small group of institutions — they’re one-off events, they say, and there’s no broader trend to be gleaned from each mess. But to the public, the spate of bad news can seem endless.
Looking ahead, it’s likely the biggest banks will get some of the relief they seek, albeit at the hands of regulators appointed by Trump, rather than through measures approved by Congress. The banks are seeking tweaks such as those to ease the ban on proprietary trading and loosen mortgage standards, among other provisions that can be tackled by the agencies without intervention from Capitol Hill. That focus also keeps the effort from becoming a political football for the likes of Sen. Elizabeth Warren, D-Mass., and other progressives.
“Some of it is shrewdness and a recognition of the landscape,” said the financial services executive.
Top officials seem to get this.
“No one is asking for Dodd-Frank to be thrown out. It has never been on any agenda,” Jamie Dimon, head of JPMorgan Chase, said in December, while emphasizing that he’s embraced stress tests, living wills and other Dodd-Frank reforms.
Bank of America’s Brian Moynihan, meanwhile, has advocated on behalf of small banks, arguing that “regulatory relief at the smaller institutions … has to be real and fast.”
But in some ways, this strategy pushes big-bank advocacy further into the shadows.
“Ever since the financial crisis the big banks have tried to stay under the radar and have enlisted trade groups to do their bidding for them,” said Ian Katz, a director at Capital Alpha Partners. “It doesn't do them any good for folks to think Wall Street is supporting issue X or issue Y.”
Community banks, too, can sometimes get caught up in this role, acting as an (often unwilling) cover for bigger banks when their policy preferences happen to align.
“When he calls for industry unity, that’s more of a code word for the megabanks that have such a terrible reputation in Washington that we want to get behind the community banks and have them act as our shield so they can shelter our advocacy agenda,” Camden Fine, president and chief executive of the Independent Community Bankers of America said in response to comments from JPMorgan’s Dimon several years ago.
Yet as long as the headlines keep coming, it’s unlikely the biggest financial institutions will be able to change course.
“The more banks make unforced errors like Wells, the more this playbook becomes a necessity rather than a choice,” said Barford.