Thomas Lee:

Wells Fargo Bank has given Sen. Elizabeth Warren Exhibit A in her effort to break up the country’s big banks.

Sen. Elizabeth Warren, D-Mass., minced no words in demanding that Wells Fargo CEO John Stumpf step down during a congressional hearing Tuesday to examine revelations of fraud at the San Francisco bank. “This is about accountability,” she stormed, while Stumpf looked on impassively. “You should resign.”

In truth, though, the populist Democrat owes Stumpf a thank-you note. Warren, a former law professor at Harvard, has long argued that the United States should break up big banks. Stumpf just provided Exhibit A for her case.

“Wells Fargo just screwed the entire industry,” said Richard Bove, an analyst with Rafferty Capital Markets, who recently wrote a book on why the United States needs big banks.

The San Francisco bank recently agreed to pay federal regulators and the city and county of Los Angeles $185 million after admitting that employees created millions of bank and credit card accounts for customers without their knowledge or consent. The company said it fired 5,300 employees, mostly lowerlevel workers, who presumably opened the fake accounts to meet Wells Fargo’s sales targets.

Critics have pointed to Wells Fargo’s sales-hungry culture as the primary culprit behind the scandal. But there’s a larger issue here. Since the financial crisis that precipitated the Great Recession nearly a decade ago, a growing chorus of politicians, activists and academics have called for the government to break up big banks. Sen. Bernie Sanders, independent-Vt., made such an action a central part of his surprisingly strong campaign for president.

Here’s the main argument for breaking up the banks: Financial institutions like Wells Fargo, JPMorgan Chase, Bank of America, and Goldman Sachs have grown so big and powerful that the U.S. economy would crumble should any one of them fail.

For the record, I don’t agree with the approach. No one has yet come up with a credible plan on how to force the banks to get smaller without damaging investor confidence and hurting the broader economy. And only Wells Fargo had the size and financial strength to absorb Wachovia when the bank faltered during the height of the financial crisis.

Bove also says that consumers, even Millennials, prefer big banks because they can offer a range of products and services that people want, a belief shared by Stumpf and his peers.

But scale works two ways, and Stumpf is trying to take advantage of both. During the Senate Banking Committee hearing Tuesday, Stumpf said that he takes full responsibility for the scandal.

At the same time, he said that the employees who participated in the scheme to create the fake accounts represented about 1 percent of Wells Fargo’s total workforce of 265,000.

“I’m not scapegoating those employees, but that’s not our culture,” Stumpf said at the hearing. “There’s nothing we did to encourage that behavior.”

And even though those employees opened up to 2 million bogus accounts, Stumpf said the company didn’t report the figure to the Securities and Exchange Commission because the information was not “financially material” to investors.

Here’s the problem with Stumpf ’s argument: He celebrates the bank’s size when the company generates revenue and profit. But he also says that bad things happen in such a large organization, and thus the company can’t effectively police itself.

Isn’t that a great reason to break up the banks?

“We’re not talking about systemic risk to the entire economy, but rather consumer protection,” said Peter ContiBrown, a professor of legal studies and business ethics at the University of Pennsylvania’s Wharton School. “It’s cold comfort to the many consumers who were victims of the fraud when the CEO says, ‘We’re actually much bigger than you think.’ ”

“The number of employees behind the scandal may be relatively small, but the culture they represent can be too difficult for executives to manage in an enterprise that big,” he said. “The culture becomes so massive that on one end of the stick, you have branch employees who need to hit sales targets. And at the other end of the stick, you have a CEO talking at conferences and in opeds about how much they value ethics.”

In essence, Stumpf always has a convenient way to defend Wells Fargo when scandals erupt. Unless something truly catastrophic happens, Wells Fargo can always claim that any fraud or malfeasance represents only a small percentage of the entire bank.

Then again, most companies didn’t generate $23 billion in profit last year alone. By that measure, Wells Fargo can’t credibly claim that the $185 million in fines and penalties represents a whole lot of money.

In any case, the scandal will not go away anytime soon, noted Bove. “Wells Fargo,” he said, “is in trouble.”