While the Wells Fargo scandal might offer marketing opportunities for community banks, the megabank's consumer fraud is far from a "gift" for the industry. Community bankers are stunned by the rampant fraud perpetrated on millions of Americans and want to ensure the negative backlash from outraged consumers and policymakers does not rub off on local institutions.
According to state and federal allegations, Wells Fargo opened as many as 2 million fraudulent deposit and credit card accounts that customers didn't want. Not only did the nation's second-largest bank violate the trust of these consumers, it then fired roughly 2% of its 268,000 employees for engaging in its improper and illegal sales practices. And while the bank's $185 million in fines may sound like a lot to the average Joe, it is decimal dust to a nearly $2 trillion-asset institution.
Community banks have been down this road before, and it doesn't end well. We know what's on the horizon — the regulatory trickle-down effect.
Again and again, systemically risky banks have made reckless decisions, harmed consumers and wrought a broad-brush legislative and regulatory response. One only needs to look at the loss of 2,000 bank charters since 2009, the direct result of the financial crisis and countless other instances of Washington responding to misdeeds at the nation's largest financial firms with regulations affecting banks large and small.
The Independent Community Bankers of America and community banks across the country are gravely concerned that the reaction to Wells Fargo will again fail to distinguish between too-big-to-manage megabanks and locally focused community banks. The last thing community banks need is another series of costly and unnecessary regulations that would only hamper their ability to serve local customers and further drive consolidation of the nation's financial resources.
Testifying before both the Senate Banking Committee and House Financial Services Committee, CEO John Stumpf sought to assure lawmakers that Wells Fargo is addressing concerns with its practices. For instance, the bank has begun sending a confirmation email to customers when a new deposit account is opened and an acknowledgement letter after customers apply for a credit card.
In other words, Wells has created an internal policy to protect unsuspecting consumers from its own employees, without fundamentally changing the sales culture created by those at the top of this too-big-to-manage bank. A policy like this seems ludicrous to a community banker, but I fully expect these notification rules and far more stringent policies will ultimately become mandatory as policymakers respond to the scandal with additional regulatory burdens on banks of all sizes.
ICBA is calling on Congress and the regulatory agencies to avoid the kinds of overreaching laws and regulations enacted after the recent financial crisis, which disproportionately affected local institutions. Further, the Wells Fargo fraud should not inhibit the passage of bills containing tailored regulatory relief for community banks, as prescribed by ICBA's Plan for Prosperity platform. Much-needed community bank regulatory relief legislation is before Congress today, and its momentum should not be stalled by Wells Fargo's fraudulent activities.
Washington must make a sharp distinction between community banks and systemically risky financial institutions. Community banks are relationship lenders whose local focus keeps them accountable to their customers. Meanwhile, the systemically risky megabanks use a transaction-based business model that derives profits by maximizing the number of customers and financial transactions.
The bottom line is that we need to fix what's wrong with American financial services by strengthening what's right with it — community banks. By achieving tiered regulation and meaningful regulatory relief for America's community banks, we'll be on the right path to make that happen, ensuring a bright future for future generations and the communities that we proudly serve.
Camden R. Fine is president and CEO of the Independent Community Bankers of America.