Category Archives: Commercial Banking

Wells Fargo’s estimate for unauthorized accounts jumps 67%, to 3.5 million

By Samantha Masunaga and James Rufus Koren  | Los Angeles Times | August 31, 2017

Wells Fargo & Co. said Thursday it may have created as many as 3.5 million checking, savings and credit card accounts without customers’ authorization over the last eight years — a number that is similar to an estimate in a class-action case but one that far exceeds the bank’s initial accounting of its sham-accounts scandal.

The question of just how many unauthorized accounts were created has loomed over the San Francisco institution since it agreed to pay $185 million to regulators after acknowledging the existence of as many as 2.1 million such accounts opened over a four-year period that ended in mid-2015.

But this spring, the bank agreed to settle several class-action lawsuits over the matter for $142 million, and the plaintiffs attorneys who negotiated the deal estimated that some 3.5 million accounts were created since 2002.

The bank on Thursday released a statement, based on a long-awaited independent report it had commissioned from accounting firm PwC, that concluded as many as 3.5 million sham accounts were created, though in a shorter time period dating from January 2009.

Wells Fargo Chief Executive Tim Sloan, in a conference call, called the new figure “a reminder of the disappointment we caused” to customers and investors, adding the bank lacked the records to expand the review to an earlier date.

Though the new, larger figure was not a total surprise, it gave new ammunition to critics of the bank.

Sen. Elizabeth Warren (D-Mass.) renewed her call for the Federal Reserve to oust more members of Wells Fargo’s board over the still-growing scandal. And Rep. Maxine Waters (D-Los Angeles), the ranking Democratic member of the House Financial Services Committee, said in a statement that the bank should be broken up.

“Wells Fargo’s misdeeds are egregious, and they must be held accountable for their many abuses of American consumers,” Waters said. “Wells Fargo has made a routine practice of ripping off and preying on their customers, in a seemingly never-ending avalanche of scandals.”

Indeed, the larger sham accounts figure is only the latest in a series of admissions, mea culpas and management changes the company has made as it continues to try to put the scandal behind it.

Over the last six weeks alone, the bank has admitted charging hundreds of thousands of auto loan customers for insurance policies they didn’t need, reported that federal regulators are looking into claims mortgage borrowers were forced to pay excessive fees and has been sued over allegations that its credit-card processing division gouged small-business customers.

Amid the seemingly unending stream of bad news, the bank announced in August that Stephen Sanger, a longtime board member who took over as the bank’s chairman in the early days of the scandal, will step down at the end of the year.

His departure and that of two other long-serving directors mark the highest-profile exits from the bank since former Chairman and Chief Executive John Stumpf resigned about a month after the Sept. 8 settlement.

Wells Fargo’s practices were first uncovered in a 2013 Los Angeles Times story that found workers, faced with overbearing pressure from management, were creating sham accounts so they could meet sales goals. In many cases, customers paid fees on those unauthorized accounts or faced potential damage to their credit scores because of unapproved credit inquiries and unknown fees.

After the story, Los Angeles City Atty. Mike Feuer began investigating the bank, and his office sued Wells Fargo in 2015. The $185-million settlement was shared by Feuer’s office and two federal regulators: the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.

Soon after, during a bruising Capitol Hill hearing, then-CEO Stumpf said the bank would review accounts created as far back as 2009 and as recently as September 2016. The new estimate of 3.5 million potentially unauthorized accounts is based on that review, which looked at more than 165 million accounts.

The review found that 190,000 of those accounts incurred fees or charges, up from an earlier estimate of 130,000 accounts. The study also found that about 528,000 accounts were potentially enrolled in online bill pay without customers’ knowledge or consent. The bank said it would refund $910,000 to those customers who incurred fees or charges. Payouts from the $142-million class-action settlement would be on top of those refunds.

The bank had known for weeks that the new review would identify a larger number of potentially unauthorized accounts. Last week, Sloan sent a letter to employees warning that there would be a wave of news coverage after the announcement of the new figures.

“The results of our reviews will generate news headlines,” Sloan wrote, “but even as we face this renewed coverage, the best thing we can do is stay focused on fixing problems, making things right for customers, and building a better, stronger Wells Fargo.”

Still, despite the expanded review, it remains unclear exactly how many unauthorized accounts were created in all. Sloan said the bank could only review back to 2009 because that is the year it acquired Charlotte-based bank Wachovia.

“That was a big demarcation in terms of data,” Sloan said. “The farther you go back, the data is just not as available or of as high quality.”

The ongoing scandal has taken a toll on the bank’s retail business, which has seen fewer customers open new accounts than in the past. In January, the bank announced a plan to trim expenses by $2 billion by 2018, and in May, it announced plans to cut $2 billion more by the end of 2019.

Wells Fargo shares fell 29 cents, or 0.6%, to $51.07 on Thursday, their lowest point since late last year.

Analysts who follow the bank said they weren’t surprised by Thursday’s announcement, but they’re still waiting to see what other bad practices the bank may divulge and how management and the board will handle new developments.

Cathy Seifert, an analyst at research firm CFRA, said it’s inevitable that there will be more bad news.

“More stuff is going to come out,” she said. “The question is, what is the board going to do, and what will regulators do?”


Mayor, council reluctantly keep Wells Fargo as city’s bank

By Tripp Stelnicki|The New Mexican|August 31, 2017

City councilors on Wednesday approved a four-year contract extension with Wells Fargo as the city’s fiscal agent.

Councilors, both for and against the measure, expressed trepidation over the extension through 2021, saying the banking giant’s financial support of the Dakota Access Pipeline and fraudulent retail account-creation practices suggested a corporate culture that does not align with the community’s values.

But, by a 6-3 margin, the council ultimately swallowed that discomfort and accepted a recommendation from city finance staff that Wells Fargo was best equipped to handle the city’s banking, treasury and investment functions, including the management of roughly $210 million in city accounts and some $560 million in annual transactions.

On top of that, councilors acknowledged Wells Fargo has a significant community presence, with seven branches in Santa Fe that employ some 90 local workers, with sizable investments with local businesses and residents.

Citing the staff evaluation, Councilor Peter Ives said Wells Fargo represented “the logical choice,” if not the perfect choice. Take any large corporation, Ives said, and “chances are you can find something I don’t like about what they have done in the past.”

But, as Councilor Carmichael Dominguez said, “We can’t just put our cash in a cash box in the finance office. We do have to work with these institutions.”

Councilors Signe Lindell, Joseph Maestas and Chris Rivera voted against the contract extension.

“It’s impossible to ignore the national issues, the corporate issues that have occurred,” Maestas said.

Those who voted in favor — including Mayor Javier Gonzales, who called his vote a “reluctant yes” — said variously they appreciated the local Wells Fargo branches’ community involvement and recognized that the bid process had produced no viable immediate alternative for the city’s needs.

“I can’t in good conscience vote no knowing there isn’t a second selection,” Gonzales said.

Gonzales also proposed a new resolution Wednesday that would amend the city’s investment policy to ensure the city’s financial agents won’t invest city money into fossil fuels. The contract extension will be governed by the investment policy, city Finance Director Adam Johnson said, and would be subject to that possible amendment.

The staff evaluation of five bidders for part or all of Santa Fe’s fiscal services ranked Wells Fargo’s bid highest overall. “Wells Fargo does provide the most comprehensive, safe and efficient fiscal service at the best price,” Johnson said.

Councilors’ and residents’ concerns about Wells Fargo’s corporate-level activities were incorporated into the evaluation under a “community initiatives” section, which found Wells Fargo represents more of a local community bank than other bidders.

Kathleen McClure-Wight, a Wells Fargo executive vice president, told councilors she appeared before them humble but confident the bank would continue to be accountable to the city and community.

“We feel very comfortable that what we do every day is in the best interests of the city,” McClure-Wight said.

The San Francisco-based bank was battered last year by revelations of fraudulent accounts created without customers’ knowledge. Thousands of workers were fired, the bank paid millions in fines and the chief executive eventually resigned.

A former vice president of a Santa Fe Wells Fargo branch filed a wrongful discharge suit earlier this year, alleging his superiors knew about the deceptive account-creation practices and fired him for raising the issue.

But perhaps of greater concern locally is Wells Fargo’s financial support of the contentious Dakota Access Pipeline, which last year drew sustained protests from Native Americans, environmentalists and others who said the project would endanger sacred lands.

Wells Fargo has loaned some $500 million to the project. The financial stakes prompted Gonzales and councilors to ask for a broader review of the city’s fiscal agent services and to try to include local options in the appraisals.

The second-ranked bidder, Bank of Albuquerque, does not have much local presence, Johnson said, with only one Santa Fe branch. In addition, that bank’s parent company is based in Tulsa, Okla.

Gonzales said he was “disappointed we didn’t see a stronger presence from the local banking community,” acknowledging the city has greater needs than those local institutions could feasibly manage.

At the city Finance Committee meeting last week, the bank’s regional manager encountered councilors’ sharp lines of questioning about both the pipeline project and the bank’s corporate culture.

Bryan Scott, the manager, told the committee he was “personally very disappointed with things that have happened in other areas of our institution” and added certain company actions did not reflect his values or those of local employees.

In a letter to the council and residents, Scott said the bank has “enhanced our due diligence … to include more focused research into whether or not indigenous communities are impacted and/or have been properly consulted” as a result of the blowback the bank has faced over its Dakota Access financing.

A task force assembled for the purpose of examining whether the city should create its own public bank recently met for the first time, and a report on its findings must be delivered to the full council by the spring.

Any move toward a public bank in Santa Fe could still be years away. But either the city or Wells Fargo can terminate the fiscal agent contract by providing written notice at least 60 days prior to the date of termination in 2021.


City looks to give community banks, credit unions slice of its business

While the city of Santa Fe encourages people to shop and invest locally, the largest chunk of taxpayer money held in city accounts is deposited at Wells Fargo, part of a big Wall Street bank that has been under scrutiny for fraudulent account practices. Wells Fargo also has been one of the financial backers of the controversial Dakota Access Pipeline.

In an effort to spread around the $210 million in various city accounts to community banks and credit unions, the city has put out a request for proposals for banking services. In grading the proposals, city officials will consider community reinvestment practices, local employment and financial education.

Bonus points will be awarded to institutions based in Santa Fe.

“We have a fiduciary responsibility to make sure that taxpayer dollars are safe and invested back into our community as much as possible,” said Mayor Javier Gonzales. “Our financial partners need to have a stake in our community.”

The city’s banking agreement with Wells Fargo ends Dec. 31, and the request issued by the city Finance Department allows for a menu of banking and finance services, with the smaller chunks aimed at attracting a more diverse group of providers.

For instance, one bank or credit union might provide savings/checking and credit card services, while another might handle escrow services or electronic payments. Wells Fargo currently provides services in several categories, said Christina Keyes, the city’s treasury officer.

Wells Fargo has been under increasing federal government scrutiny since bank branches were accused of trying to boost profits by opening more than 1.5 million sham accounts and sending credit cards to customers who didn’t request them. The publicly traded, San Francisco-based company has agreed to pay $185 million in fines to settle the allegations and has said an internal investigation resulted in the firing of some 5,300 employees who were involved.

“Some customers noticed the deception when they were charged unexpected fees, received credit or debit cards in the mail that they did not request, or started hearing from debt collectors about accounts they did not recognize,” The New York Times reported.

In a statement about the city’s request for proposals, city spokesman Matt Ross said there were “concerns from community advocates in favor of public banking and opposed to institutions which back projects that are perceived as threatening to the environment.”

But the city’s goal of attracting new banking partners may not come to pass. One local bank executive said the contract is most likely to remain with Wells Fargo because of the reserve requirements specified in the bid request.

“The city would prefer that the total of the city’s assets held at the fiscal agent bank constitute less than 10 percent of the banks’ total assets,” according to the city’s request for bids.

Even for the largest locally owned bank in Santa Fe, Century Bank, which has assets of $800 million, that would be difficult.

A local credit union executive echoed that, saying it takes in deposits and then lends the money to members and others who need personal loans as well as other financing for credit cards, mortgages and vehicles.

Even with assets of $161 million, Guadalupe Credit Union does not have the collateral to meet the city’s deposit needs, said the president and chief operating officer, Winona Nava.

“Most of our money is loaned out,” she said, “so we don’t have a lot of the illiquid investment assets they would need for us to compete.”

The effort to broaden banking services also is a result of a public banking push by a nonprofit community group, which wants to bring more accountability and transparency to how tax money is invested.

Councilor Renee Villarreal still wants to move forward with the implementation of a public bank so the city can finance its own capital projects, but that effort could take years.

Fed’s Kashkari to Jamie Dimon: It’s ‘nothing personal’ — big banks need to double their safety nets

Minneapolis Federal Reserve President Neel Kashkari told CNBC on Friday banks need “about twice as much” rainy-day capital to effectively address “too big to fail,” which put U.S. taxpayers on the hook to bail out Wall Street firms during the 2008 financial crisis.

Higher capital requirements would be on “the biggest banks, only the biggest banks” to guard against the “contagion risk” of a cascading collapse in the financial system, he said on “Squawk Box.”

He said he’s talking about banks with “$250 billion in assets and up. That’s about a dozen banks in America.”

“Those are the ‘too big to fail’ banks as we see it,” he said.

In a blog post Thursday, Kashkari argued that JPMorgan Chairman and CEO Jamie Dimon recently made “demonstrably false” statements about the banking industry.

Dimon, in his annual letter to shareholders this week, wrote “too big to fail” fears have been eradicated. He contended banks are well-capitalized enough to sustain shocks similar to what happened during the financial crisis.

Kashkari disputed Dimon’s comments, saying on CNBC: “This is nothing personal. … Banks don’t have nearly enough capital.”

“The biggest banks need about twice as much equity capital as they have today,” he continued. “We could more or less address ‘too big to fail.’ We haven’t done it yet.”

Addressing critics who argue that higher capital requirements would keep banks for lending and hurt the economy, Kashkari said, “This is about analyzing costs and benefits.

“The benefits of higher capital are we avoid these disastrous financial crises,” he said. “Safety isn’t free.”

Kashkari said he’d be willing to accept a little less lending from the big banks because “the benefits outweigh the costs.”

At the same time, Kashkari would like to see smaller banks get a break. “We would want to relax regulations on small banks [and] on community banks because they’re not systemically risky for the economy.”

In his 16 months at the Fed, Kashkari has consistently railed against the size of big Wall Street institutions. He was also the lone dissenter against a Fed interest rate hike in March.

Kashkari, who unsuccessfully ran as a Republican for governor of California in 2014, served as the administrator of TARP, the Troubled Asset Relief Program, at the Treasury Department during the financial crisis.

After leaving Washington, he joined Pimco as a managing director and head of global equities. Before his time at Treasury, he was a vice president at Goldman Sachs.

Cash Withdrawal

Come the fall, the city government could sever ties with a bank that’s helping to fund the Dakota Access Pipeline.

Santa Fe in 2013 approved a four-year contract with Wells Fargo, agreeing to pay the bank about $449,000 over the period for fiscal agent services. But the city is free to sever ties with Wells Fargo in October, due to a clause in the agreement that allows either party to terminate the contract 60 days before the end of 2017.

In an interview with SFR, Mayor Javier Gonzales threw his support behind such a change.

“When the city has money involved with banks that invest in projects harmful to our community and counter to the will of our city, we need to look at viable alternatives,” Gonzales said in an phone call from Washington DC, where he’s meeting with the US Conference of Mayors. He also reiterated his support for a study on the feasibility of establishing a public bank to manage Santa Fe’s finances.

A coalition of local activists last week asked the City Council to divest from Wells Fargo over the bank’s investments in the pipeline, following a national movement to boycott financial institutions that fund the construction project. Gonzales previously demonstrated outside Wells Fargo as part of a national day of action on Nov. 15.

The council’s second-highest-ranking member also hinted at support in an email to SFR. “I think we would all feel more comfortable using a local institution,” said Mayor Pro Tem Signe Lindell.

The city maintains 15 Wells Fargo accounts, adding up to holdings of about $46.8 million, which covers payroll, general liability insurance claims, workers’ comp claims, savings, utilities and other functions.

Wells Fargo is among the 35 institutions bankrolling the Dakota Access Pipeline or the companies overseeing its construction. The bank has pitched in about $500,000, according to a study by Food and Water Watch, a progressive research group.

About two dozen Santa Feans spoke in support of the effort during last week’s council meeting on Jan. 11, commandeering the chambers during the evening’s public comment session. Earlier in the day, the activists demonstrated outside the downtown Wells Fargo branch on Washington Avenue.

Since last spring, thousands of activists have swarmed a campsite north of the Standing Rock Indian Reservation in North Dakota to protest the construction of an oil pipeline near the tribe’s land. Tribal members worry a rupture in the Dakota Access Pipeline could contaminate their water supply, as the proposed route runs beneath the Missouri River.

Over the summer, the protest camp near Standing Rock became something of a mecca for environmentalists and supporters of Indigenous rights. Social media users circulated footage of police crackdowns on the site, including one episode in which law enforcement sprayed cold water on the protestors in freezing temperatures.

The City Council late last year passed a symbolic resolution supporting the Standing Rock Sioux Tribe and condemning excessive force on protesters. It also called on “local financial institutions to divest from the Dakota Access Pipeline Project and invest instead in life-supporting projects and renewable energy projects.”

But Santa Fe should offer more than gestures to the self-described “water protectors” camping out at Standing Rock, said Jeff Haas, a civil rights lawyer who is representing a number of anti-pipeline activists. “I’m not asking for a symbolic statement of support,” Haas told councilors. “We can make a difference.” “The record on spills is consistent,” said activist Margaret Kuhlen. “Pipelines break.”

The actions last week were sponsored by Earth Care, the environmentalist organization, and Retake Our Democracy, a progressive organizing group that grew out of the local campaign supporting Bernie Sanders for president. Jeff Ethan Au Green, a former City Council candidate who now lives in Colorado, rode a bus here last week to help direct the campaign.

Paul Gibson, co-founder of Retake our Democracy, says his volunteer corps of about 50 people will research viable alternatives to Wells Fargo for the city’s fiscal agent. That effort likely got a boost from city council on Dec. 14, when the governing body lowered the collateralization requirement for Santa Fe’s fiscal agent from 102 percent to 50 cents per dollar.

Another proposed change would require the city to consider as criteria social responsibility before selecting a fiscal agent, inspired by a resolution currently being considered by Seattle’s City Council. Alongside Wells Fargo’s pipeline investment, the bank recently came under fire for a high-profile scandal wherein the bank’s employees created thousands of fake accounts to meet sales quotas.

The campaign against Wells Fargo represents the first high-profile cause championed by Retake Our Democracy since the November elections. Gibson said City Council should be prepared for more. “This is all part of a larger plan that recognizes that right now, given the changes in Washington, the best avenue for progressive change and policy change is at the local level,” he said.

CORRECTION: A previous version of this article misstated the mode of transportation used by Jeff Ethan Au Green to travel from Boulder to Santa Fe. He rode a bus, not a personal vehicle.

Eight Years After an Epic Banking Crash, America’s Biggest Threat Is Still Its Banks

Source: Federal Deposit Insurance Corporation

In 1934 the U.S. had 14,146 commercial banks holding insured deposits. By 1985, that number had barely budged, standing at 14,417. Then came the Bill Clinton administration in the 1990s and its reckless and unprecedented banking deregulation which allowed the giant Wall Street banks to swallow up, or drive out of business, thousands of banks across America. According to the Federal Deposit Insurance Corporation (FDIC), as of December 22 of this year, there are only 5,927 FDIC insured banks left in the U.S., a stunning decline of 59 percent from 1985.

But those numbers are just the tip of the iceberg. Banking concentration in the U.S. has reached an unprecedented crisis level when it comes to deposits. Out of the dramatically shrunken base of 5,927 FDIC insured banks which were holding a total of $11.2 trillion in total deposits (insured and uninsured deposits) as of September 30, 2016, just four banks hold 44.6 percent of all deposits. Those four banks are JPMorgan Chase Bank N.A. with $1.486 trillion in total deposits; Bank of America N.A. with $1.3 trillion in total deposits; Wells Fargo Bank N.A. with $1.3 trillion in total deposits; and Citibank N.A. with total deposits of $947.8 billion. (Deposit figures are as of September 30, 2016. The source is the FDIC.)

Each of those four banks also have an outsized presence on Wall Street; each of them received taxpayer bailouts during the 2008 crash; each received secret, below­-market interest rate loans from the Federal Reserve during the crisis; and three of them (JPMorgan Chase, Bank of America and Citibank) are currently holding tens of trillions of dollars in derivatives within the insured banking subsidiary – meaning there would be a forced taxpayer bailout if the derivatives blew up the bank.

Here’s why these behemoth banks pose such a threat to the safety and soundness of the U.S. banking system. The FDIC’s Deposit Insurance Fund (DIF) as of September 30, 2016 stood at $80.7 billion (that’s billion with a “b”) to insure a total of $6.8 trillion of DIF­insured deposits. That’s a slim reserve ratio of 1.18 percent in a banking system that required $16 trillion of secret Federal Reserve loans to resuscitate itself from 2007 to 2010. Citigroup, parent of Citibank, alone received $2.5 trillion in cumulative revolving loans of the $16 trillion loaned by the Fed. It has more derivatives today than it did at the peak of the crisis in 2008.

How did Bill Clinton’s administration set this train wreck in motion? In 1999, Clinton signed the repeal of the Glass­Steagall Act which had kept the nation’s banking system safe for 66 years. This allowed Wall Street’s speculative trading activities in its investment banks and brokerage firms to merge with commercial banks holding insured deposits that are backstopped by the U.S. taxpayer. But Clinton did two other horrendous banking deeds: in 1994 Clinton signed into law the Riegle­Neal Interstate Banking and Branching Efficiency Act. This permitted bank holding companies to acquire banks anywhere in the nation and invalidated the laws of 36 states which had allowed interstate banking only on a reciprocal or regional basis. And, finally, Clinton signed into law the Commodity Futures Modernization Act of 2000, allowing trillions of dollars of OTC derivatives on Wall Street to escape regulation.

It is nothing short of fiduciary negligence that Congress has allowed this dangerous banking system to remain unreformed eight long years after the greatest financial collapse since the Great Depression.

Kashkari’s Plan to End TBTF Comes at High Price

"Ultimately, the public has to decide how much safety they want in order to protect society from future financial crises and what price they are willing to pay for that safety," said Minneapolis Federal Reserve Bank President Neel Kashkari in a speech Wednesday.
“Ultimately, the public has to decide how much safety they want in order to protect society from future financial crises and what price they are willing to pay for that safety,” said Minneapolis Federal Reserve Bank President Neel Kashkari in a speech Wednesday.

NEW YORK — Minneapolis Federal Reserve Bank President Neel Kashkari outlined a dramatic proposal  that he says will all but eliminate the risk of another financial crisis, albeit at a cost that is nearly quadruple that of the current post-crisis regulatory framework.

Almost exactly nine months after he declared that the biggest banks are still “too big to fail,” Kashkari on Wednesday revealed the long-awaited result of his regional bank’s inquiry into how to better reduce the risk of both a financial crisis and the need for the government to bail out faltering banks. He said his resulting proposal would solve the problem once and for all, but it wouldn’t come cheap.

“Regulations can make the financial system safer, but they come with costs of potentially slower economic growth,” Kashkari said. “Ultimately, the public has to decide how much safety they want in order to protect society from future financial crises and what price they are willing to pay for that safety.”

But critics have wasted little time in highlighting the plan’s costs, and Kashkari himself said he is uncertain of whether the plan will be seriously considered by the new Republican majorities in Congress as a new direction for regulatory policy.

The Kashkari plan has four core pillars:

Capital — The first provision would narrow the definition of capital to include only common equity – and then raise the minimum requirement for banks with more than $250 billion of assets to 23.5% of risk-weighted assets from its current level of roughly 13%.

Certification — The U.S. Treasury secretary would be required to certify that those banks are not “too big to fail.” If he or she will not do so, the bank must retain additional capital under the certification is granted, up to a ceiling of 38%. This process, Kashkari said, is designed to push banks to restructure themselves in such a way as to make them less complex and reduce the risk of failure and the spread of market contagion.

“We believe the threat of these massive increases in capital will provide strong incentives for the largest banks to restructure themselves so that they are no longer systemically important,” Kashkari said. “Any bank that remains TBTF will have so much capital that it virtually cannot fail.”

Kashkari clarified that he is relatively agnostic about whether the Treasury secretary or some other agency – such as the Financial Stability Oversight Council, the Federal Deposit Insurance Corp. or the Fed itself – would be the suitable venue for such certifications, but the maneuverability of the Treasury and the accountability of that office to the president and the public might make it the best option.

Taxing shadow banks — The Minneapolis Plan would also impose a tax on so-called shadow banks with more than $50 billion in assets — including hedge funds, mutual funds, and financial intermediators – of between 1.2% and 2.2%, depending on systemic risk. Such a tax would “roughly level the playing field” between the banking and nonbanking sectors, he said.

Regulatory relief — The plan would reduce and streamline the regulatory burden on small banks with less than $10 billion of assets, which “have a vital role to play in American communities” and represent a “relative lack of risk to the economy,” Kashkari said.

Kashkari acknowledges these changes carry a high price tag, saying it would put a meaningful dent in economic growth.

But Americans get something for their money, Kashkari said.

“If the Minneapolis Plan prevents one financial crisis, it will have paid for itself multiple times over,” Kashkari said. “These are the trade-offs the public needs to understand in order to assess whether we have done enough to end ‘too big to fail’ or if we should go further.”

The public notwithstanding, it is doubtful that a soon-to-be-Republican-controlled Washington is going to want to go further. President-elect Donald Trump won the White House with a campaign that has by turns tapped into the unsettled anger that many feel toward the excesses of the financial industry, but has also pushed for an anti-regulatory agenda centered on economic growth.

The first murmurs from Trump’s transition team have suggested that he will push for a pro-growth agenda, making it unlikely that Kashkari – formerly the Republican candidate for governor of California in 2014 – has mapped out a course for the future that the GOP is going to embrace.

And initial reactions from the financial services sector have been predictably critical of the plan’s drag on growth.

“For those looking to accelerate economic growth and job creation, tripling bank capital levels – already double from pre-crisis levels – will make it much harder to meet those goals,” said Laena Fallon, spokeswoman for the Financial Services Forum.

Kashkari appears to have anticipated this blowback, saying that the plan as envisioned would surely require legislation to go through Congress, and he is not clear on whether lawmakers will care to do that. But he said his concerns are with creating well-researched and well-founded policy proposals, and it is up to the public and their representatives in Congress to listen to them.

“I don’t know what the current political climate means, in terms of the prospects for this plan,” he said. “We’re not a political organization – our jobs are to identify risks where we see them … and let Congress and the public react to the, and I hope they’ll give this serious consideration. But I can’t forecast it.”

Wall Street critics, meanwhile, were critical of the plan for precisely the opposite reason – that it overestimates the economic drag of higher capital requirements, making such a proposal appear less appealing than it really is. Simon Johnson, professor at the Massachusetts Institute of Technology School of Business and frequent advocate for higher capital rules, said the Minneapolis Fed got this dynamic wrong.

“They think higher capital will slow growth, but the opposite is the case. If you lower capital requirements, the banks like it, you get some boost in credit, and then the economy blows up,” Johnson said. “I’m afraid that as much as I respect people in the Minneapolis Fed, they have fundamentally misunderstood the key point about capital and growth and financial stability.”

Regardless of the plan’s future, it does provide a sobering quantification of the holistic costs of financial crises and the relative costs, and benefits, of regulation. A financial sector under the Minneapolis Plan would look very different from the sector today, Kashkari said, and that could be appealing to Wall Street critics.

“We will have fewer megabanks, and there will be far less concentration in the banking system,” Kashkari said. “We expect that community banks will thrive and midsize banks will make up a far larger share of the overall system. If there are any TBTF banks left, they will be so well capitalized that their risk of failure will truly have been minimized.”


Wells Fargo executives forfeit millions and CEO to forgo salary amid inquiry

Announcement comes three weeks after Wells Fargo agreed to pay $185m in penalties after an audit found the bank used aggressive, illegal sales tactics

 John Stumpf will also forfeit unvested equity awards worth about $41m, according to reports. Photograph: Susan Walsh/AP
John Stumpf will also forfeit unvested {sic} equity awards worth about $41m, according to reports.
Photograph: Susan Walsh/AP


Wells Fargo executives will forfeit millions of dollars in the wake of revelations that the bank’s sales quotas led to the creation of more than 2m unauthorized accounts.

The bank’s chief executive, John Stumpf, will forgo his salary for the coming months as independent directors launch a new investigation into Wells Fargo’s retail banking and sales practices.

Last year, Stumpf made about $19.3m. Stumpf will also forfeit unvested equity awards worth about $41m.

Carrie Tolstedt, who oversaw retail banking at Wells Fargo while the unauthorized accounts were opened, was slated to receive as much as $124.6m after retiring this summer, according to Fortune. The bank said on Tuesday that she would not receive an undisclosed severance and would forfeit about $19m in unvested awards.

Wells Fargo to pay $185m for aggressive, illegal sales tactics

Less than three weeks ago, Wells Fargo announced that it had agreed to pay $185m in penalties after an audit found that its employees opened as many as 1.5m deposit accounts and 565,000 credit card accounts without customers’ consent. The accounts were opened by the bank’s staff in hopes of meeting their monthly sales quota and earning their incentive bonuses.

Wells Fargo workers have tried to draw attention to the “unreasonable” quotas before – some even staged a protest in front of the bank’s headquarters last year.

When Stumpf testified in front of the US Senate last week, he drew ire from US lawmakers. Many of them called for the bank to recoup pay from Stumpf and Tolstedt and hold them accountable.

While the bank insists that the creation of unauthorized accounts was not part of an orchestrated effort, many lawmakers expressed doubt that thousands of employees acted on their own.

Stumpf was scheduled to testify in front of the House financial services committee on Thursday. Many expected the hearing to be much of the same, including calls for clawing back the executives’ pay.

Wells Fargo pre-empted that by announcing the clawbacks on Tuesday.

The board also reserved the right for further clawbacks pending the results of its investigation.

“Based on the results of the investigation, the independent members of the board will take such other actions as they collectively deem appropriate, which may include further compensation actions before any additional equity awards vest or bonus decisions are made early next year, clawbacks of compensation already paid out, and other employment-related actions,” Stephen Sanger, lead independent director, said in the statement.

The bank also announced that it is ending its practice of sales quotas three months earlier than previously stated.

“While we continue to determine the details for 2017 goals and incentive plans for the retail bank, we are taking steps to accelerate the removal of product sales goals effective 1 October 2016, and put greater emphasis on delivering the best customer experience,” the bank said in a statement provided to CNBC. “We are also making adjustments to ensure that as we make changes, we maintain fair and consistent compensation for retail bank team members.”

This month, the bank announced that it planned to end its sales goals by January 2017.

Elizabeth Warren to Wells Fargo CEO: resign, give back earnings, submit to inquiry

When Stumpf testified in front of the Senate last week, Senator Elizabeth Warren of Massachusettstold him that he demonstrated “gutless leadership” in blaming the unauthorized accounts on the 5,300 former employees.

“This is about accountability,” she said. “You should resign, you should give back the money you took while this scam was going on and you should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission. This just isn’t right.”

Warren said that Wall Street executives were not held accountable in 2008 “when they crushed the worldwide economy” and were not being held accountable now, either.

“The only way that Wall Street will change is if executives face jail time when they preside over massive frauds,” Warren told Stumpf. “Until then it will be business as usual, and at giant banks like Wells Fargo, that seems to mean cheating as many customers, investors and employees as they possibly can.”


Kashkari Bucks Fed Norms Adding Emojis to Public Debate on Rates

Neel Kashkari Photographer: Jin Lee Bloomberg
NEEL KASHKARI Photographer: Jin Lee Bloomberg

Since the financial crisis, Federal Reserve officials have tried to communicate their policies to a wider constituency. With Neel Kashkari, the boundaries are being tested.

“.@Six1FourCapital 4 me it’s a q of r we hitting dual mandate? Is there still labor slack? R we hitting infl [target emoji]. Where r expectations going?” the Minneapolis Fed president said in a Twitter post May 25, in response to an online question from a commodities trader.

In the cloistered world of central banking, Kashkari is updating Fed watchers in 140 Twitter characters or less — social-media blurbs that can drop anytime, from anywhere, on any subject, including his dog Webster. A former Goldman Sachs Group Inc. vice president whose pet project now is creating a plan to break up big banks, Kashkari views his unconventional, folksy approach as one way to engage with people who don’t work on Wall Street.

“For 30 years, or maybe longer, the Fed had adopted this Wizard of Oz posture, that we’re so mysterious, we’re so powerful, don’t ask any questions,” Kashkari, who at 42 is the youngest regional Fed bank president, said in a July 7 interview. “At the end of the day, we’re here to work on behalf of Main Street.”

Strange Bedfellows

Not everyone agrees with his agenda. While his push to find a new solution for dealing with large banks has been lauded by Democratic Senator Bernie Sanders and a policy wonk at the libertarian Cato Institute alike, he’s been criticized for appearing on the scene with his own proposals to fix problems the Fed has been grappling with for years.

In his inaugural speech in February, Kashkari declared that “now is the right time” for Congress to consider going beyond the Dodd-Frank financial oversight law and that some banks still pose too big a risk to the broader economy. He used the event at the Brookings Institution in Washington to announce that the Minneapolis Fed — among the smallest Fed district banks by operating expenses — would be holding policy symposiums throughout 2016 to explore the big-bank threat.

Gaining traction may be difficult if Kashkari, a failed California gubernatorial candidate, can’t convince a wider group of his peers and lawmakers. Dallas Fed President Robert Kaplan, himself a Goldman Sachs alum, has said that “size, in and of itself, does not pose a systemic risk” and that he doesn’t think “breaking up the big banks today would reduce risk.” San Francisco’s John Williams says “the approach we’ve taken so far has been the right one.”

Former Fed Chairman Ben Bernanke, who spoke at the second Minneapolis forum, said in a blog post that he welcomes discussion on how to tackle large systemic institutions, but much has been done to that end and that a forced breakup of large firms “doesn’t seem to be a smart way” to promote financial stability.

“It was very presumptuous of him to come in at the end of this process and say, ‘Everybody screwed it up,”’ said Tony Fratto, managing partner in Washington at Hamilton Place Strategies, which has represented banks, and a former assistant Treasury secretary in the administration of President George W. Bush.

Yellen Kinship

In other respects, Kashkari is proving more conformist. On monetary policy, he says he cleaves closely to Fed Chair Janet Yellen, who economists often view as the center of the Federal Open Market Committee. “She and I agree on a lot — or, I find myself sympathizing with her view quite a bit of the time,” he said, calling Yellen “a great sounding board.”

One thing Kashkari thinks the Fed should communicate better on the monetary policy front is its commitment to a symmetric 2 percent inflation target, making it clear that the number is not a ceiling.

“Before I came to the Fed in January, I interpreted 2 percent as a ceiling and not a target, despite the formal pronouncements to the contrary,” he said. “So I understand why a lot of people in the market interpret it as a ceiling rather than a target.”

Kashkari almost wound up in Texas. The Dallas Fed considered him as a candidate in its president search last year, but he wasn’t selected. Minneapolis tapped him instead, and he started in January. It’s been a good fit because it’s “a little bit non-traditional” in its approach and has economists who think differently, Kashkari said.

His path to the Fed wasn’t the customary route through an Ivy League school for a Ph.D. in economics. Raised outside of Akron, Ohio, by parents who emigrated from India, Kashkari attended Western Reserve Academy, a prep school in Hudson, Ohio, where he wrestled and showed an early interest in science. He graduated with a master’s from the University of Illinois at Urbana-Champaign in 1997.

‘Cool Nerd’

“Neel was kind of a cool nerd,” said Eric Weldy, who was on a solar-car competition team that Kashkari led in 1997. Weldy said he always had a strategy for precisely what the team needed to do. “He had lots of energy, but not over the top.”

Kashkari worked as an aerospace engineer developing technology for NASA missions, then went to business school at the University of Pennsylvania after being rejected from Harvard. From Wharton, he took a job at Goldman Sachs in San Francisco.

During his four years at Goldman, Kashkari advised technology companies on mergers and financing, a role he said he didn’t find “intellectually challenging” like engineering. “I always had an interest in the back of my mind about politics. Not politics, so much, but public policy,” he said.

He applied for a prestigious White House fellowship — which he didn’t get — and had one 15-minute conversation with Henry Paulson, then the bank’s CEO. When Paulson left to become Treasury secretary, Kashkari asked to follow him in what he described as “pretty much a cold call.”

After a background check, Paulson agreed, and Kashkari moved to Washington. He worked first a senior adviser and later became one of the key officials overseeing the implementation of the Troubled Asset Relief Program, a politically unpopular program that purchased assets and equity from financial institutions to stabilize them during the crisis.

Kashkari, whose wife used to work for Bloomberg, left Treasury in 2009 — he’s since headed up a global equities division at PIMCO and run an unsuccessful campaign against incumbent Democratic California Governor Jerry Brown. But his time working on TARP laid the foundation for his current push.

Career Aspirations

Kashkari’s district bank intends to publish policy briefs summarizing the results of the forums, followed by a plan aimed at legislators and policy makers. One problem: There’s no clear path to push those suggestions from ideas to reality. Kashkari says he’d be happy if members of Congress put it forward as legislation.

“I did not come here saying, ‘I’m going to work on too-big-to-fail,’ I came here saying, ‘I want us to take on the biggest public-policy economic challenges we face as a country,”’ Kashkari said. His staff, especially Executive Vice President and Senior Policy Adviser Ron Feldman, pointed to big banks as an issue ripe for action and had decades of experience with the topic.

Feldman said in an interview that the research agenda of risks posed by big banks, an issue on which he co-authored a 2004 book with then-Minneapolis Fed President Gary Stern, took a backseat under the purview of Stern’s successor and Kashkari’s predecessor, Narayana Kocherlakota, who was more focused on monetary policy issues.

While Kashkari’s well-publicized straying from the Fed herd has led some to question his end-game, he says it’s undefined and he has no plan to spring back into politics anytime soon. In the meantime, he’s not shying away from acknowledging the Fed’s shortcomings, saying at an event in St. Louis just last week that the central bank has been wrong on the economic data.

“People ask me that — there’s no grand plan on my career, and there never has been,” said Kashkari, an FOMC voter in 2017 and the only Fed district bank president who posts regularly on a Twitter account. “I hope I’m at the Minneapolis Fed for a long time, and who knows what could come after that.”


Santa Cruz County Won’t Do Business With Big Banks That Act Like Crooks

Photo: Michael Fleshman
Photo: Michael Fleshman


Santa Cruz County, California, recently figured out a way to hold big banks who engage in illegal and destructive behavior accountable: Don’t do business with them.

According to AllGov California, the Santa Cruz County Board of Supervisors, acting on a request from Supervisor Ryan Coonerty, voted to “not do new business for a period of five years with Citigroup, JP Morgan Chase, Barclays, Royal Bank of Scotland and UBS as specified, and further direct that the County unwind existing relationships with these five banks to the greatest extent feasible.”

That means the county won’t buy the banks’ commercial paper or investment services, and will withdraw whatever funds it can from them.

Coonerty, and others, are not happy with the way big banks savaged the global economy and paid a pittance for their misdeeds.

As BuzzFlash documented, the Department of Justice under Eric Holder chose to only go through the motions of appearing to punish egregiously errant “banks too big to fail” without legally mandating structural or executive changes. Holder and his top leadership used the revolving door of the Department of Justice to end up with enhanced salaries and “rainmaking” connections at posh DC corporate and financial services law firms such as Covington & Burling. The fines and charges that they imposed were generally nothing more than public relations stunts; they made no meaningful impact.

Not much has changed in the swaggering illicit behavior of large financial institutions, partially because neither the Department of Justice nor the regulatory Securities and Exchange Commission has legally compelled significant transformation.

The Santa Cruz County Board of Supervisors is hopefully setting a precedent by hitting banks who engage in risky and harmful activity right in the pocketbook.

On his blog, Robert Reich praised Santa Cruz County for an innovative act of leadership that other governmental bodies – as well as individuals, organizations and companies – can follow:

The county won’t use the banks’ investment services or buy their commercial paper, and will pull its money out of the banks to the extent it can.

“We have a sacred obligation to protect the public’s tax dollars and these banks can’t be trusted. Santa Cruz County should not be involved with those who rigged the world’s biggest financial markets,” says supervisor Ryan Coonerty.

The banks will hardly notice. Santa Cruz County’s portfolio is valued at about $650 million.

But what if every county, city, and state in America followed Santa Cruz County’s example, and held the big banks accountable for their felonies?

Large cities, counties, states and the federal government could force big banks to alter their greedy behavior by simply severing ties. The $650 million at stake in Santa Cruz County could grow into hundreds of billions of dollars lost in government banking relationships if the Santa Cruz action gains momentum.

There is nothing that catches the attention of Wall Street financial institutions like the loss of revenue and profit.

Of course, in the long term, the current banking system needs to be completely restructured. However, in the short term, if the Santa Cruz action were to go viral across the nation, Reich speculates that the resultant financial losses might cause the monstrously large banks “to clean up their acts.”

The creation of public banks across the US, based on the model in North Dakota, is a more desirable long-term goal – but for the moment, governmental entities severing their ties to Wall Street would be a salutary step.