Fed's Dudley Cites Wells Fargo Scandal in Call to Change Banking Culture -- Update
March 21 2017 - 3:56PM
Dow Jones News
By Katy Burne
Federal Reserve Bank of New York President William Dudley urged
banks to report more progress on changing their culture, singling
out Wells Fargo & Co. for its recent sales-practices
scandal.
"The public sector must continue to shine a spotlight on the
issue, and the industry must continue to demonstrate that it is
taking responsibility for its culture," Mr. Dudley said in prepared
remarks for a Tuesday event in London organized by the Banking
Standards Board.
Wells Fargo has faced criticism, as well as state and federal
investigations, over a sales-practices scandal that erupted last
fall, in which employees opened as many as 2.1 million accounts
without customers' knowledge.
"There was a serious mismatch between the values Wells Fargo
espoused and the incentives that Wells Fargo employed," Mr. Dudley
said. "Investigations into what happened at Wells Fargo are
continuing, so I will wait before drawing more definitive
conclusions. For now, though, it is sufficient to note the powerful
role -- for good or for bad -- that incentives can play in an
organization."
A Wells Fargo spokeswoman in a statement said the bank was
working on improvements: "We've eliminated product sales goals for
retail bankers, and introduced a new compensation plan that puts
the priority on customer experience, oversight and controls and
team goals. Our new compensation plan puts our customers' interests
first and is an important part of rebuilding trust with all of our
stakeholders."
Mr. Dudley said it was important employees not focus on
short-run profits, and that firms measure how successfully they are
changing banker behavior.
"Any bank should emphasize the long term over the short term,"
he said, adding that in the past he had "encouraged the industry to
collaborate on a common culture survey that could serve as a
benchmark for behavior."
In the financial crisis, Mr. Dudley said, mortgage bankers were
compensated based on the volume of loans they generated and not
their quality. In the recent scandal at Wells Fargo, bankers were
paid by the volume of accounts opened, "apparently with utter
disregard for whether customers wanted them or even knew about
them," he said.
In one BSB survey of bankers, he said, nearly 30% of respondents
answered that they would be worried about negative consequences at
work if they raised concerns about activities.
Write to Katy Burne at katy.burne@wsj.com
(END) Dow Jones Newswires
March 21, 2017 16:41 ET (20:41 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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