Fed's Dudley Cites Wells Fargo Scandal in Call to Change Banking Culture -- Update

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 [e-mail]

(END) Dow Jones Newswires

March 21, 2017 16:41 ET (20:41 GMT)

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