Skepticism of Wall Street has grown much deeper in Congress because of Wells Fargo’s fake accounts scandal, if Thursday’s hearing with the bank’s CEO is an indication.
John Stumpf faced repeated accusations from members of both parties that his bank is a criminal organization, and lawmakers repeated suggestions that he should resign or even be imprisoned.
During the hearing, several members of the House Financial Services Committee argued that the inquiry into Wells Fargo’s illicit creation of millions of unwanted accounts should go beyond the bank and that executives from other banks should be questioned by Congress.
Some Republicans suggested that Wells Fargo’s creation of the fake accounts raised the question of whether it and other banks are too large to be managed effectively. Others said it endangered the free market system.
“You’ve made it really hard for us who are defenders of the market economy to continue to maintain the system that has helped drive this successful enterprise that is called the United States of America and the free-market system,” Rep. Frank Lucas, R-Okla., told Stumpf.
Some Republicans also tried to lay out the case that federal regulators who failed to prevent the bank from falsifying accounts were also to blame and that Congress’ investigation of the scandal should encompass the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau, a frequent target of conservatives who criticize it as unaccountable and overbearing.
“Perhaps our federal regulators deserve a pat on the back, perhaps they deserve a swift kick on the backside,” said Jeb Hensarling, Texas Republican and chairman of the panel.
Rep. Steve Pearce, R-Ariz., said that “at the very best, you and our federal regulators were asleep at the switch,” and he raised questions about whether the consumer bureau has done anything to prevent similar actions in the future.
The bureau levied a $100 million fine on Wells Fargo for the fake accounts, the largest such penalty in its history, but Republicans questioned why it didn’t halt Wells Fargo until well after the media uncovered that employees were generating unwanted accounts for customers.
Yet the overall focus of lawmakers was on Wells Fargo and the banking industry, not regulators.
Several Democrats raised the possibility that other banks might have similar practices and called for bringing other megabank CEOs before Congress to ask them.
“We have to find how pervasive this bubble is, we have to,” said. Rep. Al Green, D-Texas.
And several members sought to establish the timeline and details of the scandal in questioning Stumpf, as if to build a case against Wells Fargo’s management for securities fraud or other prosecutable activity.
In particular, some lawmakers sought to demonstrate that, in previously boasting to investors about the company’s success in selling multiple accounts to customers, Stumpf had established that those fake accounts were material, meaning that he was obligated to disclose to investors that he found out they were fake.
In an exchange with Rep. Ed Royce, R-Calif., Stumpf explained that even with the vast scale of the faked accounts — as many as 2 million of them — the number of fake accounts didn’t significantly affect Wells Fargo’s overall success in gaining accounts.
Securities fraud is just one of the charges that members of Congress have sought, however. Lawmakers have called for the bank to be investigated not only by the Securities and Exchange Commission, but also the Justice Department, the Department of Labor and the Small Business Administration.
“You think today is tough?” Rep. Michael Capuano, D-Mass., asked Stumpf. “When the prosecutors get a hold of you, you are going to have a lot of fun.”
