by: Saamia Khan
Just recently, Wells Fargo, a large financial institution, came under massive scrutiny for some mounting misconduct. In an effort to reach quotas and maintain sales targets, thousands of employees illegally opened up fake credit cards and bank accounts in the names of existing customers. Customers only found out about these accounts when charged with fees much later on. This created the façade that the company was doing much better than the reality, an appealing condition for shareholders. It seems as though Wells Fargo will finally be held accountable with a fine of $185 million from the governmental organization known as the Consumer Financial Protection Bureau.
A multitude of questions remain on if and when high ranking employees knew about the malpractice. The congressional committee on financial issues held a hearing to further investigate the matter. Testifying before them, CEO John Stumpf defended his decision to give up $41 million in his pay in lieu of resigning. Wells Fargo fired about 5,300 employees in different regional banks, who they claim responsible for the fraudulent behavior. Massachusetts Senator Elizabeth Warren acted especially adamant when she said to Mr. Stumpf, “So you haven’t resigned, you haven’t returned, you haven’t returned a single nickel of your personal earnings…You push the blame to your low level employees who don’t have the money for a fancy PR firm to defend themselves. It’s gutless leadership.” Finally, however, John Stumpf resigned after increasing public pressure.
Many share Warren’s discontentment with Wells Fargo and large banks in general, which brings Wells Fargo’s fraud into the bigger picture of the banking. Following the Great Recession of 2008, a plethora of mostly leftist senators and representatives seek to gain a stronger hold on banks by instituting more regulations. Warren and Senator John McCain in particular are pushing for the reinstatement of Glass-Steagall, the 1930s legislation that separated commercial bank transactions from other firms, prohibiting banks from making risky investments. Bill Clinton repealed Glass-Steagall in 1999. However, given that the financial institutions are currently so complex, this proves to be a quite burdensome, if not impossible, task.
Part of the problem stems from the substantial push from higher level executives at the bank to increase profits. Through a specific incentive program, lower level employees felt obligated to make fake accounts just to meet certain quotas. The employees were then rewarded with bonuses in relation to the amount of accounts made. Professor Amiram of Columbia University analyzed that, “If the managers are saying, ‘We want growth; we don’t care how you get there,’ what do you expect those employees to do?’” Wells Fargo has since discontinued this program.
Customers still find themselves in a predicament. One Wells Fargo customer, Shahriar Jabbari claims in a lawsuit against Wells Fargo that employees created seven fake accounts in his name, causing his credit score to greatly suffer. Other customers also assert that their financial reputation has been damaged.
The question of financial regulation remains a key controversy. President-elect Donald Trump promises to repeal Dodd-Frank, a law enacted in response to the 2008 recession. This might prove detrimental to Wall Street transparency efforts, and what some might say, caused the Great Recession.