USA TODAY International Edition
Sigh: It’s ‘ TBTF’ all over again
Big banks are out of control. Delamaide,
Even if customers abandon Wells Fargo, most will have little alternative except to go to another big bank.
The latest scandal at Wells Fargo shows not only that the country’s biggest banks are too big to fail and their executives too big to jail, but also that they are too big to punish in any significant manner.
Even though regulators belatedly caught up with the bank’s systematic efforts to sign up customers for 2 million new accounts without their knowledge and fined the San Franciscobased bank $ 185 million, that amount hardly exceeds the compensation for the executives responsible for the culture that perpetrated this fraud.
So when Wells Fargo chief executive John Stumpf testifies as he did Tuesday before the Senate Banking Committee that he accepts “full responsibility,” this is a fairly meaningless statement coming from the bank CEO who topped the list for excessive compensation in a study out this month for collecting $ 155 million in compensation from 2012 to 2015.
Not only has Stumpf given no indication that his accepting responsibility would include his resignation, he refused to commit to any clawbacks of bonus compensation for himself or the senior executive directly responsible for the unit perpetrating the fraud, who according to press reports is set to retire with more than $ 120 million in deferred compensation.
In fact, Stumpf foundered his way through some very critical questioning by not recalling exactly when he found out about the systematic deception, not wanting to interfere with the board’s compensation committee in reviewing possible clawbacks, and not — since of course he is not a lawyer — wanting to comment on whether the practice was criminal fraud.
Apparently not even the loss of nearly $ 60 billion in shareholder value in the past two months can shame this chief executive into truly drawing personal consequences. This is the very definition of reputational risk — a much bigger punishment than the regulators’ fine.
But not enough. The true consequence of the damage done to Wells Fargo’s reputation would be a stampede of customers out of the bank.
However, this won’t happen. Given the concentration in the banking industry, with a few big banks dominating the credit card and consumer finance business nationwide, most customers will have little alternative except to go to another big bank.
What emerged clearly from Tuesday’s hearing — though it has been patently clear at least since the 2009 financial crisis — is that these big banks are unmanageable, as evidenced by the billions of dollars in fines for vari- ous transgressions in misleading customers.
Wells Fargo alone has racked up numerous fines to settle complaints for claiming federal insurance on defaulted housing loans, for overcharging merchants on credit card fees and for mortgage infractions, among others.
Stumpf’s explanation in press interviews — even as he takes “full responsibility” — that the blame lies with the 5,300 “rogue” employees who signed up the fraudulent accounts prompted New Jersey Democrat Sen. Bob Menendez to label this remark “despicable.”
But that was mild compared to Massachusetts Democratic Sen. Elizabeth Warren who — after asking Stumpf whether he had resigned, or paid back any of his compensation, or fired any of the executives responsible — accused him of “gutless leadership” and called on him to step down.
Warren said there will be no change at the big banks until executives responsible “face jail time when they preside over massive fraud.”
But, as we well know from the past seven years of bank executives evading any criminal charges, this is not going to happen, either.
The outrage on the Senate panel from members of both parties was palpable, and no doubt reflects the outrage among the public. Because the Consumer Finance Protection Bureau led the federal regulatory charge in the Wells Fargo investigation and collected its biggest fine yet — $ 100 million of the $ 185 million — the latest Republican initiative to curb its powers, the so- called Financial Choice Act, has been stopped in its tracks.
But it won’t be the amount of the fine — a rounding error for a bank the size of Wells Fargo — nor even the stock market loss, which may be recouped once this blows over, that brings any change to Wells Fargo or any other big bank. It’s far from certain, in fact, that the anger over the Wells Fargo scam will even be a tipping point in the attitude toward the banks among the public, which has a short attention span at the best of times and is currently preoccupied with a baffling presidential race.
What’s more likely is that the bank CEOs, like Stumpf before the Senate panel, will take their verbal beating, accept “full responsibility” and continue in their unchecked efforts to increase shareholder value, and with it their own outsize compensation.