On Nov. 14, Federal Deposit Insurance Corp. Chairman Martin Gruenberg issued a stern warning about the deregulatory mindset of Congress and Trump-appointed bank watchdogs.

Gruenberg, whose term is winding down, said recent proposed changes in post-financial crisis regulations threaten the “guardrails” that ensure a well-functioning banking sector.

He’s right. But Congress repealing provisions of Dodd-Frank is not the biggest threat to those guardrails. The most immediate threat involves the failure of regulators, including the FDIC itself, to assertively use powers that are still on the books.

A man uses a Wells Fargo ATM inside a branch in New York.
Wells Fargo’s prudential regulator has found that the bank’s violations constitute “unsafe or unsound” practices. By statute, this alone is grounds for the FDIC to terminate a bank’s deposit insurance. Bloomberg News

Take the appalling case of Wells Fargo. For over a year, the bank has been hit with a flurry of revelations about wrongdoing. The number of accounts in the notorious fake-accounts scandal has swelled from 2.1 million to 3.5 million. The bank has been implicated in charging 800,000 auto loan borrowers unnecessarily for car insurance, with the added costs leading to nearly 25,000 cars being wrongly repossessed. It has saddled student loan borrowers with illegal late fees and other bogus charges. It has seized hundreds of cars from active-duty service members without the court order required by federal law.

Wells Fargo’s prudential regulator, the Office of the Comptroller of the Currency, has found that the bank’s violations in the fake-accounts scandal constitute “unsafe or unsound” practices. By statute, this alone is grounds for the FDIC to terminate a bank’s deposit insurance. Yet there is no indication the FDIC has even begun an investigation into whether Wells Fargo deserves continued access to that privilege.

The benefits of deposit insurance backed by the full faith and credit of the U.S. government (courtesy of the U.S. taxpayer) and a federally granted bank charter both come with responsibilities. When a bank repeatedly violates the public’s trust through fraud, abuse and violations of law, regulators are rightly empowered to reexamine its eligibility for such benefits. With missions of ensuring public confidence in the financial system and fair treatment of consumers, regulators also have the moral charge to do so. But they must be prepared to use that authority.

Losing federal deposit insurance would be a serious consequence — no question. But wherever an investigation leads (to a consent order as a condition of retaining public benefits, to a move to break the bank up into units of a more manageable size, or to termination of access to FDIC insurance), regulators hold a trump card to compel proper behavior by banks like Wells Fargo.

The FDIC is not the only regulator deserving of criticism. The OCC is empowered to bring a lawsuit to revoke the charter of a bank under its watch, if it is determined that the bank's board of directors knowingly permitted violations of banking law. Yet despite the OCC's finding of legal violations by Wells Fargo in the fake-accounts scandal, and a separate OCC report finding its board was regularly updated since 2005 that most complaints to Wells Fargo's internal ethics hotline were linked to sales violations, there is little indication that the agency under past and current leadership seriously considered fully investigating the extent of the board's knowledge.

The current crisis of accountability at Wells Fargo should be a wake-up call to regulators to take a stronger approach to prevent banks’ misdeeds from causing widespread damage to consumers and the economy. After all, strong accountability for Wells Fargo is not expected from Congress, which already passed a repeal (that President Trump signed) of a Consumer Financial Protection Bureau rule safeguarding the right of defrauded customers to hold a bank accountable in court. And a recent analysis found that Wells Fargo would receive the biggest tax cut in the S&P 500 from congressional Republicans’ tax framework — a cool $3.7 billion.

Waiting for the bank’s leadership to reform itself is no better. The company retains 12 out of the 15 directors who oversaw the bank during the fake-accounts scandal. Even the executives with direct supervision of those fraudulent activities were allowed to walk away with millions of dollars.

That is why the FDIC and OCC must insist on a higher bar of accountability. Demand Progress recently joined groups including the AFL-CIO and Americans for Financial Reform in calling on these regulators to launch an investigation of Wells Fargo’s wrongdoing and consider terminating its federal deposit insurance and revoking its bank charter.

Rep. Maxine Waters deserves credit for driving the conversation forward with her proposed Megabank Accountability and Consequences Act, a bill that requires the FDIC and OCC to investigate. But regulators do not need orders from a gridlocked Congress to be able to act.

It is no doubt tempting for the banking industry to imagine itself protected by the deregulatory bent of the current congressional leadership and presidential administration. But there is still a demand in several corners of the country to hold corporate giants like Wells Fargo accountable for violations of the public trust. The authority to do so is already on the books. Regulators should not wait until after the next election to use it.

Kurt Walters

Kurt Walters

Kurt Walters is the campaign director of Demand Progress and its affiliated Rootstrikers, which coordinate activists pushing for financial reform and reform of money in politics.

BankThink submission guidelines

BankThink is American Banker's platform for informed opinion about the ideas, trends and events reshaping financial services. View our detailed submission criteria and instructions.