The Irony of Today's Banking Crisis

How regulators are harming rather than protecting consumers

Ric Edelman: It's Monday, March 27th, and I am astonished that Wells Fargo is paying yet another $300 million to settle yet another class action lawsuit. In this particular case, this lawsuit alleged that the bank forced hundreds of thousands of its customers to buy unnecessary insurance when getting an auto loan.

This is just the latest in a long string of financial fines and lawsuits, settlements that Wells Fargo has incurred since 2000. Wells Fargo has been fined $25 billion in 230 separate violations. We're talking mortgage abuses, banking violations, toxic securities abuses, investor protection violations and outright fraud, just to name a few. In 2014, Wells Fargo paid a $5 million fine in a document tampering case. In 2016, Wells Fargo paid a $185 million fine for creating 1.5 million fake deposit accounts and 500,000 fake credit cards. 5,300 Wells Fargo employees were fired, including the CEO, John Stumpf.

Also in 2016, Wells Fargo paid a $20 million fine for improperly repossessing cars owned by members of the military. Wells Fargo has also paid settlements in lawsuits for overcharging small business owners, discriminating against borrowers who are black and Latino. Wells Fargo paid a $480 million fine to settle a securities fraud lawsuit. The bank has refunded tens of millions of dollars for overselling pet insurance to its bank customers. Wells Fargo paid $8 million for wrongfully foreclosing on 400 homeowners. 

The bank has been nailed by regulators for failing to report money laundering. Wells Fargo has paid $500 million for misleading investors, $3.7 billion for mismanaging loans for over 16 million of its customer accounts. And just three weeks ago, Wells Fargo announced that some of its customers have not been getting their direct deposits.

Recently, Wells Fargo's former head of retail banking pled guilty to obstructing a bank examination. He's going to prison and personally paying a $17 million fine. How can a bank employee have enough money to pay a $17 million fine? Just how much compensation are they giving these people? Why haven't the regulators just shut down this bank?

Because, quite frankly, they'd have to shut down all of them. Wells Fargo isn't even the worst of the big national banks. It's the third worst since 2000. As I said, Wells Fargo has paid $25 billion in fines for 230 separate incidents. But Bank of America has paid $85 billion in fines for 271 incidents. JPMorgan Chase, $36 billion in fines, 223 incidents. Wells Fargo, $25 billion in fines. Citigroup, $25 billion. Deutsche Bank, $18 billion. UBS, $17 billion. Goldman Sachs, $17 billion. NatWest, $13 billion. And Morgan Stanley, $10 billion in fines.

All of these banks combined - $350 billion in fines since 2000 -  for mortgage abuses, toxic securities abuses, investor protection violations, banking violations, consumer protection violations and anti-money laundering deficiencies. The regulators can't shut down all these banks because, well, that would be the end of the US banking system. There's $20 trillion in deposits at US banks. Half of that money is in the top 25 banks in the US. And here's the irony, regulators have been shutting down banks, but they've been regional banks including Silvergate, Silicon Valley Bank and Signature Bank. And on the radar is First Republic Bank.

The regulators are chasing people out of these regional banks simply because they've been doing business with companies that are in the crypto business. These companies are operating legally, legitimately, properly.

But regulators don't like crypto, and so they're shutting down banks that are doing business with crypto companies. And what are they doing? In essence, they're chasing all of those depositors into the big banks, the very place where you are most likely to get scammed with abusive sales practices, high fees, poor disclosures and lousy service. I thought regulators were supposed to help us. Instead, all they're saying to these big banks is go ahead, run your businesses incorrectly, improperly, inappropriately, make gazillions of dollars in excess profits incorrectly. We'll just fine you a little bit of it to support our own budgets and funding. 

Can you imagine a bank robber where the rule is, hey, if you rob that bank and take all the money and we catch you, you're going to have to give some of the money back. That's essentially what they're saying to these big banks. Go ahead and make massive profits. We'll just make you give some of the money back after we catch you. If we catch you, if you haven't already retired, if you haven't already cashed in your stock options.

Meanwhile, they're going after regional banks that don't have this kind of an abusive record. Makes you wonder exactly what's going on in the banking system. And maybe you're beginning to discover why bank stocks have so underperformed the S&P 500 for the past 20 plus years, and why over the past four months, bitcoin has radically outperformed the entire stock market. Maybe people are discovering the way that bank regulators are handling and managing banks that crypto is actually safer than banks. Go figure. If you're listening to me on Apple Podcasts and you want to share your thoughts, make sure to subscribe and leave me a review. I read them all. I just might read yours on the air.

 -----