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Fed freezes Wells Fargo's growth, will force out four board members

Fed freezes Wells Fargo's growth, will force out four board members
© Greg Nash

The Federal Reserve board on Friday night announced that it would restrict the growth of Wells Fargo and replace four of its board members, a massive blow to the scandal-ridden bank.

Wells Fargo is banned from doing anything that would increase its total consolidated assets past their December 2017 levels while it takes measures to bolster its compliance with federal banking laws. The bank will still be able to issue loans and take deposits. 

The Fed’s action against Wells Fargo is one of the strongest federal rebukes to a big bank since the 2007 financial crisis.

"We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again," said Fed Chairwoman Janet Yellen.

"The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers." 

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The Fed forced every member of the Wells Fargo board to sign a consent order laying out the process through which the bank can return to expanding. Yellen and Fed Governors Jay Powell and Lael Brainard voted in favor the action. Randal Quarles, the Fed's vice chair of supervision, did not vote given his recusal from matters involving Wells Fargo.

Wells Fargo has 60 days to send the Fed thorough action plans on how it would revamp the board's oversight of the bank and its risk management system. The bank is also required to commission two third-party reviews of its reform efforts. All are subject to the Fed's approval. 

Tim Sloan, Wells Fargo CEO and president, said he's"focused on addressing all of the Federal Reserve’s concerns," which he said address matters the bank has taken internal steps to handle.

Wells Fargo has been involved in numerous scandals dating back to 2011, all prompting federal and state investigations. The San Francisco-based bank opened as many as 3.5 million accounts for customers without their authorization while charging fees for the unwanted services. The Consumer Financial Protection Bureau fined Wells Fargo more than $100 million, and former CEO John Stump stepped down.

Wells Fargo also charged thousands of customers for auto insurance products they didn’t need, and paid a $108 million settlement after charging veterans hidden fees to refinance their mortgages.

“It is important to note that the consent order is not related to any new matters, but to prior issues where we have already made significant progress. We appreciate the Federal Reserve’s acknowledgment of our actions to date," Sloan said.

Wells Fargo earned bipartisan scorn from lawmakers, some of whom called for Wells Fargo’s former leaders to be jailed. Some Democrats and liberal political groups had called on the Fed to wipe out Wells Fargo’s board and break up the bank.

The Fed’s action, which officials say is unprecedented, comes a day before Yellen’s term as chairwoman ends and she leaves the board.

Republican lawmakers had warned Yellen against taking undue action against any bank, especially while multiple law enforcement and regulatory agencies were probing Wells Fargo.

Yellen was mum on the Fed’s plans to rein in Wells Fargo, but insisted the Fed would take commensurate action given the depth of the bank’s problems.

Updated at 7:37 p.m.