Senator Elizabeth Warren says Wells Fargo has run out of time to fix the many internal problems that have harmed its customers.
In a letter to the Federal Reserve chair, Jerome H. Powell, on Monday, Ms. Warren asked the Fed to force the financial giant to break off its core banking activities, like offering checking and savings accounts and loans, from its other financial services.
Divorcing Wall Street-centric work — which can include managing investment funds and providing financial market sales and trading services — from the bank would ensure that Wells Fargo’s everyday customers did not continue to suffer, Ms. Warren wrote. The Fed could accomplish this, she explained, by revoking Wells Fargo’s financial holding company license — essentially making it impossible for the company to operate any nonbanking businesses.
“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.
It’s the first time that Ms. Warren, a Massachusetts Democrat, has made such a request to a regulator. If the Fed granted it, Wells Fargo would somehow have to shed dozens of nonbank subsidiaries.
A Fed spokesman confirmed that the letter had been received.
Wells Fargo has spent years trying to right its standing with regulators and lawmakers after a cascade of disclosures of misconduct by the bank against its customers. It admitted to opening accounts in their names without their knowledge, forcing them to buy unnecessary insurance and charging them unwarranted mortgage fees.
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. The Office of the Comptroller of the Currency found that Wells Fargo’s management of its mortgage accounts had been so sloppy that it might have improperly foreclosed on some borrowers’ homes. The regulator fined the bank $250 million, ordered it to halt some foreclosures in progress and gave it five months to get its management systems on track.
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Wells Fargo has been operating under a Fed-imposed asset cap since early 2018, a move intended to force the bank to take broad steps to overhaul its risk-management procedures and establish better protections for its customers. But Ms. Warren said the bank was distracted from that goal, citing reports that Wells Fargo was trying to expand activities like putting together corporate mergers and other investment banking services.
The bank should be forced to give up those Wall Street pursuits “to ensure that its leaders focus all of their attention on fixing the bank’s numerous, chronic risk-management deficiencies,” she wrote.
Wells Fargo is the country’s fourth-largest bank, though its Wall Street presence — including investment banking and wealth management services — is much smaller than those of competitors like JPMorgan Chase and Bank of America. Its chief executive officer, Charles W. Scharf, has a Wall Street background and, since taking over two years ago, has tried to make Wells Fargo more profitable by steering it more toward Wall Street.
“I am concerned that Wells Fargo’s senior executives are focused on expanding risky investment banking activities instead of remediating consumer harms and improving lax internal controls,” Ms. Warren said, though her letter to Mr. Powell did not mention Mr. Scharf by name.
Ms. Warren sent a separate letter on Monday to the chairman of Wells Fargo’s board of directors. It asks for details about how the board is overseeing the bank’s cleanup efforts and why it is paying Mr. Scharf so well — he received more than $20 million in the 2020 fiscal year — even as the bank’s problems endure.