Lawmakers Demand More Big Bank Oversight From The Fed

In the wake of the Wells Fargo scandal that has seen the massive banking institution assessed almost $200 million in fines and its CEO and former community banking head facing $60 million (so far) in compensation clawbacks, Federal Reserve chairwoman Janet Yellen said the central bank will scrutinize all big banks.

That promise came during a hearing on bank regulation with the House Financial Services Committee described as “contentious” and a line of questioning as to whether or not the Fed has adequately addressed the risks posed by the largest U.S. banks.

Democratic congressional representatives on the committee were particularly adamant that big banks are too big to manage and should be broken up.

“Wells Fargo has identified two additional reasons to break these institutions up,” said Rep. Brad Sherman (D., Calif.) of the scandal that saw employees passively and actively encouraged to create fake accounts by the millions.

On Thursday, the same committee will hold a hearing on the Wells Fargo matter with testimony from Chief Executive John Stumpf.

“We are undertaking a look comprehensively not only in the consumer area but at compliance generally because there have been very disturbing patterns of violations” in businesses such as mortgage lending and foreign exchange, Yellen told Congress.

Republican Sean Duffy, chairman of the committee’s investigative panel and a regular Fed critic, wanted the answer to one main question — are banks still “too big to fail” without a tax payer bailout. He didn’t talk about Wells Fargo in particular, but did say “too big to fail still exists.”

“I wholeheartedly disagree on many issues with Elizabeth Warren, but at least she is truthful on that one,” he said, referring to the Democrat senator from Massachusetts who has called for big bank breakups.

Yellen defended the Fed’s recent actions, noting that under Dodd-Frank, the Fed has made “significant progress” in reducing the probability of future bailouts.  Ms. Yellen reiterated the Fed’s commitment to raise capital requirements for big banks as part of the stress tests.