In an announcement that was clearly timed for maximum embarrassment (with the news hitting just as Wells Fargo was presenting at the Barclays Global Financial Services Conference), Sen. Elizabeth Warren has stepped up her long-simmering feud with Wells Fargo. In a letter to Fed Chairman Jerome Powell (whose future tenure she recently jeopardized by complaining loudly about his qualifications), the Massachusetts Senator demanded that the Fed force a breakup of Wells Fargo, separating its Wall Street businesses like trading, asset management and corporate banking and advisory from consumer-facing businesses like mortgage lending and providing retail banking services (something the bank already does on a massive scale).
In her letter first reported by the NYT, Warren says Wells has “run out of time” to fix the problems at its bank. The Fed imposed an asset cap on Wells’ balance sheet back in February 2018 which – while it was lifted temporarily during the pandemic – is still in place.
The bank has been rattled by a series of scandals in recent years, most notably the fake account cross-selling scandal that exploded in 2016 and destroyed the bank’s relatively innocent (by Wall Street standards) reputation (much of which stemmed from Warren Buffett’s investment).
Divorcing consumer and Wall Street banking would help protect regular Americans from the depravities of Wall Street, and could be accomplished with the simple stroke of a pen.
The Fed would only need to revoke the bank’s financial holding company license, essentially blocking it from performing all Wall Street-related activities. That would force the bank to spin off its investment bank.
“Continuing to allow this giant bank with a broken culture to conduct business in its current form poses substantial risks to consumers and the financial system,” she wrote.
Warren has suggested that Wells be broken up before during heated interrogations of the firm’s CEO and other bank CEOs during a series of Senate hearings in recent years. But this is the first time Warren has officially requested the Fed to break up Wells.
Last week, federal regulators announced another set of fines and restrictions on the bank, stemming from the its inappropriate handling of some of its home loan customers’ portfolios. And just yesterday, a trial began involving a series of former Wells’ executives who are being sued over their roles in the fake account scandal.