Janet Yellen to join Brookings Institution upon leaving Fed

Eileen GuzmanFeb 07, 2018

In a rare move, the Federal Reserve announced Friday that it is restricting Wells Fargo's growth and demanding the replacement of four board members in response to "widespread consumer abuses and compliance breakdowns" at the bank. Fed Chair Janet Yellen said Wells Fargo will not be allowed to grow any larger until it can do so without endangering customers.

In a prepared statement, the Federal Reserve said it could not tolerate the persistent and pervasive misconduct at any US bank and those consumers hurt by Wells Fargo expect that comprehensive and robust reforms will be implemented to make certain the abuses will never occur again. The asset limitation will remain in effect until third-party reviews have been completed to the satisfaction of the Federal Reserve. One of her colleagues will be her predecessor, former Chairman Ben Bernanke, who joined Brookings in 2014 when he stepped down from the Fed.

"I made clear that I would be willing to serve another term and so yes, I do feel a sense of disappointment", she said.

The bank has also said it would make $80 million in refunds to more than 570,000 of its auto loan customers who were charged for insurance without their knowledge.

Controllers can't permit "inescapable and determined wrongdoing at any bank", Yellen said in an announcement. The asset cap can be lifted before the rest of the order is satisfied. Wells had previously said it would add new directors this year, with three expected to retire before its April shareholder meeting.

Options for preventing asset growth include limiting deposits from companies and other banks, and dialing back trading assets and other short-term investments, the presentation showed.

Wells Fargo's balance sheet expanded steadily from the end of 2013 to 2016, but growth slowed dramatically a year ago as it battled to address the issues raised by the scandal. Elizabeth Warren, the Massachusetts Democrat, had requested the Fed oust Wells Fargo board members. Four individuals from the organization's board are to be supplanted before the year's over, extending an update of the board, the Fed said Friday.

The Fed's unexpected censure of Wells Fargo should also be a boon to its rivals.

The Fed specifically cited the need to strengthen oversight by the bank's board of directors, and sent letters outlining the failures to Stumpf and another former director. The Office of the Comptroller of the Currency - the primary regulator for the firm's banking operations - soon followed up with more sanctions, including its own effort to squeeze the lender's growth in late 2016.

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