U.S. Senator Elizabeth Warren asked the Federal Reserve to force Wells Fargo & Co. to separate its traditional banking and Wall Street businesses, after the lender was handed fresh regulatory action and a $250 million fine this month.
In a letter to Federal Reserve Chair Jerome Powell, Warren called on the Fed to revoke Wells Fargo’s status as a financial holding company in order to effect a separation. The Fed should order the company to develop a plan to ensure its customers are protected through the transition, the Massachusetts Democrat said.
“Every single day that Wells Fargo continues to maintain these depository accounts is a day that millions of customers remain at risk of additional negligence and willful fraud,” Warren wrote. “The only way these consumers and their bank accounts can be kept safe is through another institution—one whose business model is not dependent on swindling customers for every last penny they can get. The Fed has the power to put consumers first, and it must use it.”
The New York Times earlier reported the contents of the letter. A representative for the Fed confirmed it received the letter and said it planned to respond. Wells Fargo didn’t have an immediate comment.
Wells Fargo was fined this month over its lack of progress addressing long-standing problems, the first such sanction under Chief Executive Officer Charlie Scharf. The penalty adds to the more than $5 billion in fines and legal settlements the bank paid over the last five years tied to a series of scandals that began with fake accounts in its branch network.
The latest order, from the Office of the Comptroller of the Currency, cited deficiencies in Wells Fargo’s home-lending loss mitigation practices — the steps firms take to avoid foreclosure — that have prevented the bank from being able to “fully and timely remediate harmed customers.”
Warren cited the Bank Holding Company Act, which requires that banks are well capitalized and well managed. If a financial holding company falls short of these, the Fed is required to give a notice for the institution to correct its deficiencies. Should the bank fail to remedy those within 180 days, the Fed can ask the company to divest control of any subsidiary depository institution — or the bank can choose to cease to engage in activity that isn’t permissible for a bank holding company.
“This new incident raises fresh questions about whether the company can meet the needs of its customers,” Warren said.
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