Wells Fargo stock is down 9 percent this morning following the announcement that the Fed was penalizing the financial institution. The central bank sighted “widespread consumer abuses” after it was made public that Wells Fargo created millions of fake customer accounts. And the Fed is coming down hard, putting a limit on Wells Fargo’s entire assets, the first time it has done this in history. This means that Wells Fargo will not be allowed to expand until the Federal Reserve sees fit. Wells Fargo is the second largest bank in the US, managing $2 Trillion in assets, second only to JPMorgan Chase. Wells Fargo is now facing the toughest penalty issued by the Fed.
Much of Wells Fargo’s problems came after reports of wrong doing. It created 3.5 million fake customer accounts dating back to 2009, without customer approval. It forced 570,000 customers to pay for insurance they did not need. It wrongly fined mortgage clients for missed deadlines even though the delays were caused by the bank itself. Moreover, Wells Fargo has also had to pay hundreds of millions of dollars in fines following the reports of their wrong doings. The harsh penalties from the Fed are well deserved. Wells Fargo has been expanding and profiting from unethical business practices while its customers suffer. Without being able to expand, its profits will drop and so will its stock value. But more importantly, the bank is likely to lose many of its customers. It has lost the faith of its customer base and many will not return to do business with them. Wells Fargo put revenues and growth above the wellbeing of its customers, in fact it purposefully hurt its customers for its own gain and now it’s paying the price. It’s good that Wells Fargo is finally getting penalized, but regulators have to get better at catching on to unethical and illegal business practices because Wells Fargo was hurting its customers for years. There has to be better regulation, especially for institutions like Wells Fargo, which manages $2 Trillion in assets. Businesses also have to steer clear of illegal and unethical business practices, otherwise they too will face fines, penalties and legal action like Wells Fargo. Wells Fargo will likely recover from this, but most businesses when faced with fines and penalties won’t, for many businesses harsh penalties and losing customers will ultimately close their doors.