The Wells Fargo fake-accounts scandal just won’t go away, with a Fed official saying Tuesday that the scandal has a lot of similarities to the subprime mortgage crisis and a top Democrat accusing the bank of dodging congressional inquiries.
The scandal broke last year when it was revealed that Wells Fargo employees, under constant pressure to perform, had opened 2 million unauthorized customer accounts. The scandal resulted in congressional hearings, the ouster of CEO James Stumpf, and a broad conversation about the place of sales incentives in the banking industry.
It’s sales incentives that worry the president of the Federal Reserve Bank of New York, according to a HousingWire report. In a speech in London, New York Fed President William Dudley said that Wells Fargo’s intense, sales-driven culture reminded him of the culture that shaped the days before the subprime mortgage meltdown.
“As I have argued before, incentives shape behavior, and behavior drives culture,” Dudley said. “If you want a culture that will support your long-term business strategy, you need to align incentives with the behaviors that will sustain your business over the long haul.”
“But, the culture of every bank should share a common theme: stewardship—a word that implies professional care, exercised year after year for the benefit of the firm and its stakeholders,” Dudley said. “A commitment to the long term must be at the core of banking. Incentives within a firm should support that goal, not undermine it.”
Dudley said that “bad incentives were a key contributing factor in the financial crisis” of 2008, comparing Wells Fargo’s incentive plans to pre-2008 incentives for “mortgage brokers, who were paid based on the volume of loans they generated, not their quality.”
Meanwhile, Rep. Maxine Waters (D-Calif.), the ranking member of the House Financial Services Committee, has accused the bank of dodging additional congressional inquiries about the scandal.
In a letter to Wells Fargo CEO Tim Sloan, Waters pointed out that Sloan and other executives had given “unrecorded interviews” to Republican staff for the committee in December, but have yet to comply with Democrats’ repeated requests for the same.
“If this is indicative of how Wells Fargo responds to its customers, I can understand why so many of them are upset with their treatment,” Waters wrote.
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