The Federal Reserve announced February 2 that it is mandating the replacement of four members of Wells Fargo’s board, in what NPR described as an “unusual penalty.” The Fed carried out this penalty in response to Wells Fargo’s fake accounts scandal, in which bank employees opened millions of fake accounts without consumers’ knowledge.
In addition to replacing the four board members, the Federal Reserve is placing a growth cap on the company. This is the first time the Fed has placed such a restriction on company, according to NPR. The Fed’s press release states that “Until the firm makes sufficient improvements, it will be restricted from growing any larger than its total asset size as of the end of 2017.” These improvements include requirements for the bank to “to improve its governance and risk management processes, including strengthening the effectiveness of oversight by its board of directors.”
Fed Chair Janet Yellen said,
“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. 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.”
Besides the Fed’s landmark action to limit a firm’s growth, this news is noteworthy for another reason. Friday, February 2 was Janet Yellen’s last day as the Chair of the Federal Reserve Board of Governors, a position that will now be assumed by President Donald Trump’s appointee, Jerome Powell. Powell has served as a member of the Board of Governors since 2012. t