Lawmakers press Yellen on Wells Fargo

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, D-Calif., told Yellen during a hearing of the House Financial Services Committee on the Fed’s regulatory responsibilities.

Sherman said Wells Fargo’s problems indicated the giant San Francisco-based bank was too big to manage. He asked 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.

When Sherman said that the Fed hasn’t been able to do that with Wells Fargo, Yellen responded that “we believe it is possible, even though it is extremely challenging.”

When violations do occur, Yellen said that bank executives should face consequences.

“I think it is very important that senior management be held accountable,” she said in response to questions from Rep. Stephen Lynch, D-Mass.

Lynch 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?” Lynch said. “It blows my mind that they’re getting away with this and they’re paying a little slap-on-the-wrist fine.”

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. Last week, Yellen said the Fed would look into the procedures at those banks to make sure they were complying with consumer protection laws and other regulations.

Yellen recommitted to that review

Wednesday.

“We are undertaking a look comprehensively, not only in the consumer area but in compliance generally, because there has been a very disturbing pattern of violations,” she said.