The fault, dear Brutus, is not in our stars, but in ourselves
--William Shakespeare, Julius Caesar, Act 1, Scene 2
There's been a lot of ink spilled over the past week about Wells Fargo's cross-selling culture paving the road to perdition with bricks of fool's gold. As might be expected, enemies of big banks took the time to prove, once again, the truth of Rahm Emanuel's observation that politicians (which includes lobbyists, by the way) should never let a crisis go to waste. The ICBA's Cam Fine was in high dudgeon when he spewed bile on "non-community banks" and their nefarious ways. He might have overlooked the fact that during the savings and loan and banking crisis of the late 1980s and early 1990s, and the massive bank failures that followed the 2008 meltdown, plenty of smaller bankers were exposed as being filled with the same hubris and character flaws that apparently haunt the canyons of Wall Street. It doesn't make Wells Fargo's failures any less reprehensible, but sometimes riding a high horse causes you to miss the low fence up ahead.
Dan Berger, head credit union shill for the NAFCU, blamed the whole sordid affair on the fact that commercial banks have shareholders, which, he implies, incentivizes them to make money any way they can, including by fraudulent means. He apparently argues that because credit unions are member owned, therefore, economic incentives are not present to make profits that would be distributed to shareholders in the form of dividends or retained to enhance stock prices. These disincentives mean that most community banks, faud-wise, are cleaner than a pre-Vatican II convent. As another credit apologist put it, "friends don't let friends use a commercial bank." With friends like that, who needs enemies?
Placing the blame on the capitalist system, the profit motive, and the private ownership of the means of financing the means of production is likely to win over some Bernie Sanders supporters or those seeking a cult to join now that Elvis has left the building, and that might be a winning way of increasing membership. Adam Smith, on the other hand, is spinning in his grave at a speed usually achieved only by the Large Hadron Collider. Equally offended might most other for-profit publicly- and privately-owned businesses in the United States, who have shareholders, partners, or LLC members, to whom management and employees are accountable for producing net income (after taxes) and who don't engage in fraudulent activities to produce that profit. That would include all those small businesses that credit unions are trying to get the authority to "bank." So, good luck with that marketing ploy.
I started out in representing financial institutions by taking an in-house position with a large mutual savings institution in 1977. Unlike a credit union, it actually had to pay taxes, and its customers weren't subject to a field-of-membership requirement (a "field of dreams" that credit union advocates have steadily expanded throughout the decades), but the legal "owners" of the mutual institution were similar to those in a credit union: the depositors in and borrowers from that institution. I spent four years there, and in that time, I saw plenty of fat and happy executives and employees who, having no more than a handful of "owners" who actually paid attention to the business, and no shareholders who might demand efficiency in operation and the provision of competitively-priced, market-attractive products and services that would generate a decent return-on-equity, contented themselves with a daisy-chain of "don't-rock-the-boat" policies that favored nice incomes, regular hours, decent expense accounts, and a not-exactly-tukus-busting work ethic that left time for plenty of convention-attending and mid-afternoon tee times. Each business model has its own incentives and disincentives, but the success of either model in any individual case depends on the quality of the human beings that run them.
I read one commenter (I cannot locate his or her comment now) to one of the articles I read on Wells Fargo's failures, that the root cause is not a legal compliance failure but a moral failure. I agree, although I'd paint with a broader brush.
According to a Wall Street Journal article that delves deeply into the Wells Fargo "culture," the policies and procedures adopted at the highest levels of the bank did not condone the vilified behavior of many employees. On the other hand, there was obviously a massive failure to enforce those policies on a consistent basis throughout the bank, over a sustained period of time. The article is rife with incidents recounted by former employees, including one where senior management in the sales area warned employees at a regional meeting not to engage in opening false accounts, yet another managers, in one case a branch manager, telling employees to ignore that advice. Moreover, even though senior management is now attempting to throw lower-level employees under the bus, they also admit that the bank fired over 5,000 employees over a period of several years for engaging in fraudulent behavior. How could such activities continue over such an extended period of time without raising red flags that demanded immediate, systemic changes? My guess is that those red flags were raised, that compliance personnel did their job, and that foot-dragging and opposition from the retail side of the bank stiff-armed a quick and comprehensive response. Since the CFPB, the OCC, the City of Los Angeles, and (my secret sources inform me) the Vatican are, and will continue to be, examining the depths of the bank's nether regions with electron proctoscopes, I think the odds are better than even that more details will be forthcoming and more heads will roll (the latest, apparently, being the head of retail banking, who is retiring).
At the bottom level, however, no matter what the pressures or incentives, the fact that so many sources who contributed to the linked article and others I have read on the subject, were former Wells Fargo employees who left in disgust at the pressure to do the wrong thing, indicates that this fraud could not have been perpetrated for so long and so extensively without a character issue, from the ground floor to the roof. Every day I toiled in Big Law, the pressure was there, effectively if not expressly communicated, to "make your hours." Padding hours and churning the file pressures were always present, but it takes a failure of personal virtue to allow them to succeed. Executives who placed that pressure on subordinates, and those in authority who looked the other way, bear a greater culpability. However, no one at Wells Fargo who participated in these activities is off the hook.
“The only thing necessary for the triumph of evil is for good men to do nothing.”