Wells Fargo hit with rare growth ban in Yellen’s final act
Former Fed chair says ‘would have liked to serve additional term’
NEW YORK: After markets closed on her final workday in office, Federal Reserve chair Janet Yellen delivered a blow to one of the nation’s largest banks: Wells Fargo & Co won’t be allowed to grow until it cleans up.
Fed officials said the San Franciscobased lender’ pattern of consumer abuses and compliance lapses called for an unprecedented sanction.
Until Wells Fargo addresses shortcomings in areas including internal oversight, it can’t take any action that would boost total assets beyond their level at the end of 2017, without the Fed’s permission.
The bank said after-tax profit in 2018 would be reduced by US$300mil to US$400mil and its stock slumped in late trading last Friday. “This is akin to the last scene in The Godfather,” said Isaac Boltansky, an analyst at Compass Point Research & Trading.
“Chair Yellen decided to handle unfinished business on her way out the door.” Yellen’s act stands out at a time when the Trump administration is looking to dial back some of the financial regulations put in place after the 2008 global financial crisis. Those moves include watering down enforcement actions at the Consumer Financial Protection Bureau and proposing revisions to Dodd-Frank reforms on Wall Street.
Wells Fargo began stumbling through a spate of scandals 17 months ago, starting with revelations that branch employees opened millions of accounts without customer permission to meet aggressive sales targets.
WASHINGTON: Federal Reserve chair Janet Yellen professed her disappointment over not being tapped for a second term by President Donald Trump, as she also predicted the central bank would keep on its path of gradual interest-rate increases.
“I would have liked to serve an additional term and I did make that clear, so I will say I was disappointed not to be reappointed,” she said on Friday on PBS NewsHour in a rare television interview.
In her last day on the job, Yellen added, “I feel great about the economy, I think things are looking very strong.”
“The Federal Reserve has been on a path of gradual rate increases and if conditions continue as they have been, that process is likely to continue,” she said.
In a break from past practice, Trump opted not to nominate Yellen to a second four-year term. Instead, he chose fellow Republican Jerome Powell to head the central bank.
Earlier on Friday, the Brookings Institution announced Yellen, 71, is joining the Washington-based think tank to continue her economic studies and particularly her analysis of the labor market.
Powell is to be sworn in as chair today. As perhaps her final act at the central bank, Yellen late Friday hit one of the largest US banks, Wells Fargo & Co, with an unusual ban on growth that follows the San Francisco-based lender’s pattern of consumer abuses and compliance lapses.
Regulators can’t allow “pervasive and persistent misconduct at any bank,” Yellen said in a statement.
Yellen said last Friday that gains in the labor market had begun to benefit “almost all groups in the American economy,” and that she expected the pace of wage growth to move up, but perhaps not dramatically.
“Ultimately it’s limited by productivity growth, which is weak,” she said.
During Yellen’s four-year term, unemployment fell to 4.1%, from 6.7% when she took office.
The January reading, released oh Friday, matched the lowest since 2000 and was below the level that most economists – including those at the Fed – reckon is equivalent to full employment.
Inflation, though, has consistently fallen short of the Fed’s 2% objective during Yellen’s tenure and stood at 1.7% in December, according to the Fed’s favorite price gauge.
Yellen and her fellow policy makers said this week that they expect inflation to rise this year and to hit their target “over the medium term.”
Notwithstanding this week’s rout in the stock market, investors have prospered during Yellen’s time atop the central bank.
Since she took control in February 2014, the Dow Jones Industrial Average has risen by more than 65%.
As Fed chair, Yellen began the process of exiting from the extraordinary measures that the Fed put in place during the financial crisis and its aftermath, gingerly lifting interest rates from near 0% and slowly scaling back the central bank’s big holdings of bonds.
Yellen’s exit marks the end of more than 15 years of public service in two stints at the central bank.
She first served as a governor under chairman Alan Greenspan in 1994 to 1997, before chairing the White House Council of Economic Advisers from 1997 to 1999 during the Clinton administration.
She returned as president of the San Francisco Fed in 2004, became vice chair in 2010 and chair in 2014. — Bloomberg