IF only we could unleash Elizabeth Warren on the unruly elements of our financial services sector.
Elizabeth, who, you might ask? You should watch the footage of US Senator Warren savaging the “gutless” boss of Wells Fargo, a bank which sacked thousands of staff after it admitted carrying out unethical sales practices in its retail banking business, but failed to fire a single executive.
It was stirring to see a politician take on the big bankers so fearlessly and demand that they face justice. But it was depressing to compare her passionate attack on the unacceptable face of banking with the generally timid response to misconduct from our own regulators and policymakers. Wells Fargo is under pressure to show it is holding its top brass to account after US government investigations revealed that some of its employees opened as many as two million accounts without customers’ knowledge in order to meet sales targets. The bank agreed to pay around $190 million earlier this month to settle regulatory charges over the account scandal and it has fired about 5,300 employees, most of them low-ranking staff, in connection with it.
Ms Warren refused to be appeased by the performance of Wells Fargo’s CEO John Stumpf, who told the Senate Banking Committee that he took responsibility for the wrongful actions and was committed to fixing the issue.
“You squeezed your employees to the breaking point so they would cheat customers, “ said Senator Warren. “You should resign.”
It seems Senator Warren’s fierce words and the threat of regulatory action have had an impact. Wells Fargo said that Mr Stumpf will forfeit unvested equity awards worth about $41 million and will not get a salary while the company’s board investigates the bank’s sales practices.
Carrie Tolstedt, the former head of the retail division at the centre of the sales scandal, has left the company ahead of her planned December 31 retirement date. She will get no severance and has forfeited unvested equity awards worth about $19 million, the bank said. Mr Stumpf and Ms Tolstedt will also not receive bonuses for 2016.
The penalties represent one of the biggest financial sanctions ever levied against a major bank boss. It marks a big change from a few years ago, when despite a host of scandals at large US banks, no chief executive had to give back a bonus. This is unlikely to be the end of the matter.
A special committee of Wells Fargo’s independent directors will lead an investigation into the retail bank’s sales practices. The investigation may lead to further compensation changes or employment actions, the company said, adding: “We will conduct this investigation with the diligence it deserves.”
In the US, policymakers and regulators sing from the same hymn sheet. The banks have reason to fear them if they do something wrong. I’m not convinced we can say the same thing in Britain.
Earlier this year, the Government was accused of “neutering” the Financial Conduct Authority (FCA)- the City watchdog - by Labour MP John Mann, after MPs criticised the FCA for failing consumers. The FCA came under the spotlight last year when its chief executive, Martin Wheatley, was ousted by David Cameron’s government after complaints that Wheatley was taking too hard a line with some financial services firms.
It isn’t just dyed in the wool Socialists who are worried about the UK’s lack of regulatory muscle. Andrew Tyrie - a Tory MP who chairs the Commons Treasury Select Committee - believes City regulators must display greater vigilance and energy if they are to win public backing. Britain’s banks have been hit by scandals covering most forms of financial activity. And despite being hit with hefty fines when they have been caught, many banks have continued to pay billions of pounds in bonuses to staff.
This is morally reprehensible and economic madness. We need our own version of Elizabeth Warren to maul the miscreants.