Latest Wells Fargo Fail a Temporary Setback

SMITH BRAIN TRUST – Wells Fargo’s recent “living will” stumble is just that, says finance professor David Kass at the University of Maryland’s Robert H. Smith School of Business. He says he expects the San Francisco-based bank to submit a satisfactory financial crisis contingency plan to regulators the next time around.

Wells Fargo failed to meet Federal Reserve and FDIC standards for a living will – a key requirement under Dodd-Frank, as a big bank’s plan for unwinding in a financial crisis minus taxpayer-funded bailouts. “I found [the failure] extremely surprising given that Wells Fargo has been one of the best managed banks in the country along with JPMorgan Chase,” Kass recently told Bloomberg Radio. “And I think it will be relatively easy and doable for Wells to meet this requirement at the next deadline – at the end of March 2017.”

Former FDIC General Counsel Michael H. Krimminger, who appeared with Kass in the Bloomberg segment, concurred. “These are issues they can address – primarily [based on] analysis and providing additional rigor for their analysis for their resolution plans.”

JPMorgan Chase, Bank of America, Bank of New York Mellon and State Street each passed their living will tests after all four plus Wells Fargo had failed in April. Left behind, Wells Fargo now is prohibited from expanding its nonbank activities or operations outside the U.S.  Wells Fargo investors were largely unfazed by the news. Wells Fargo shares dropped 2 percent on Wednesday (Dec. 14), the day after the announcement, then recovered much of the loss over the next two days. The penalty and ruling are unrelated to the $185-million fine the company faced in September for setting up bogus consumer accounts.