Lawmakers press Fed’s Yellen to punish Wells Fargo for scandal

WASHINGTON — Outraged lawmakers pressed Federal Reserve Chairwoman Janet L. Yellen on Wednesday to punish Wells Fargo & Co. for creating as many as 2 millions fake accounts, but she declined to commit to any regulatory penalties.

“Two million phony accounts. Break them up!” Rep. Brad Sherman, DCalif., told Ms. Yellen during a hearing of the House Financial Services Committee on the Fed’s regulatory responsibilities.

Mr. Sherman said Wells Fargo’s problems indicated the giant San Franciscobased bank was too big to manage. He asked Ms. Yellen if she would “at least seriously consider breaking up Wells Fargo” using the Fed’s authority to downsize banks that pose a risk to the financial system.

“We will hold the largest [financial] organizations to exceptionally high standards of risk management, internal controls and consumer protection,” she said.

Rep. Stephen Lynch, DMass., criticized the recent $185 million settlement with Wells Fargo that ended investigations into the scandal by Los Angeles City Attorney Mike Feuer, the U.S. Office of the Comptroller of the Currency and the U.S. Consumer Financial Protection Bureau because the bank did not admit any wrongdoing.

“If it didn’t happen here, how we can even imagine ever that a bank might be required to take responsibility?” Mr. Lynch said.

The OCC and the CFPB oversee Wells Fargo’s retail banking operations, where the accounts were created without customer authorization. The Fed supervises the parent holding company of Wells Fargo and the largest U.S. banks.

Wednesday’s hearing signaled that Wells Fargo chief executive John Stumpf will face tough questioning today when he testifies at a hearing by the committee about the bank’s fake accounts and aggressive sales tactics.

Meanwhile, Mr. Stumpf and the executive who ran the bank’s retail banking division will forfeit tens of millions of dollars in pay as the bank tries to stem the scandal over its sales practices.

The independent directors at the nation’s secondlargest bank said Tuesday that Mr. Stumpf will forfeit $41 million in stock awards, while former retail banking executive Carrie Tolstedt will forfeit $19 million of her stock awards, effective immediately. Both are also giving up any bonuses for 2016.

In another development, California Treasurer John Chiang said Wednesday he’s suspending some of the state’s most profitable lines of business with Wells Fargo. While the sanctions apply to only a portion of California’s business with Wells Fargo, the impact could grow if more states follow suit, as Mr. Chiang urged them to do.