An express lesson for Wells Fargo and other banks

Reform of the world financial system since 2008 has made it stronger, yet a massive scandal at Wells Fargo highlights the ongoing need to build ethical resilience into the industry.

AP Photo
A man passes by a Wells Fargo bank office in Oakland, Calif. Regulators announced Sept. 8 that Wells Fargo is being fined $185 million for illegally opening millions of unauthorized accounts for their customers in order to meet aggressive sales goals.

Since the global financial crisis in 2008, many countries have tightened rules for banks to improve their integrity and prevent another crisis. Yet last year Federal Reserve Chair Janet Yellen spoke of “pervasive shortcomings” in values at financial firms. And Bank of England governor Mark Carney said more bank scandals would create “a perception of ethical drift.” Their disquiet was prescient. On Thursday, the US watchdog for consumer finance imposed its largest fine ever on one of the nation’s largest banks, Wells Fargo.

The bank was fined $185 million for opening millions of checking and credit-card accounts for customers without telling them. Staff transferred money into the accounts and made up email addresses and PIN numbers, all to meet internal goals and earn extra compensation for generating new business. Many customers were hit with extra fees.

Not only was the operation illegal, according to the federal Consumer Financial Protection Bureau, but its scale revealed a giant ethical lapse. After the practice was exposed, some 5,300 Wells Fargo employees were fired. The massive purge was an attempt to instill a clean culture and refocus the bank on customer needs and less so on incentive compensation schemes and sales targets. The bank expressed regret and is taking responsibility in making amends.

The scandal was not big enough to cause another market meltdown. Yet along with other recent banking scandals in the US, Britain, Germany, and elsewhere, it revealed the need for further reforms aimed at building ethical resiliency into financial firms. Last month, Mr. Carney, who also serves as head of the global forum of national regulators – the Financial Stability Board (FSB) – issued this warning: “The incidence of financial sector misconduct has risen to a level that has the potential to create systemic risks by undermining trust in both financial institutions and markets.”

The FSB is now studying various ways to hold individuals in financial firms more accountable for bad behavior. The industry is stronger and more stable as a result of recent reforms, Carney said. But more work is needed on whether banks’ compensation structures encourage employees to rig markets, lie to customers, or engage in similar conduct. Wells Fargo’s executives would know what he means.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.