Another banking scandal involving Wells Fargo: is it that surprising?

Amber Mironov, Contributing Writer

Even if you’re not interested in banking or finance, you’ve probably heard about the 2016 Wells Fargo Scandal. If you haven’t, the scandal isn’t far from the stereotypical Wall Street story of a greedy financier making money at the expense of innocent investors. It’s a story of an underlying problem in banking that perpetuates the inherent mistrust of the financial system in the United States and in investors across the globe.

Historically, damage control has been used to mitigate the corrupt image of banking, particularly in the case of the financial crisis of 2008. In 2016, Wells Fargo renewed fears of mistrust, as it is estimated that over 2 million accounts were illegally opened by Wells Fargo employees without the consent of their customers. These actions were purely driven by unrealistic sales quotas put forth by the company’s former CEO John Stumpf.

One year later, Wells Fargo is back in the headlines and under fire for the same scandal. It appears that an additional 1.4 million illegal accounts were created on top of the already estimated 2 million. While I would like to say that I’m shocked about this new revelation, I’m not.

Before the scandal, Wells Fargo was consistently ranked as a top bank in terms of sales, directly correlating with the amount of accounts opened at the company. In addition, it has been reported that the aggressive sales culture of Wells Fargo dates all the way back to 2002, earlier than was reported in the first investigation. Thus, it is no surprise that Wells Fargo was able to consistently maintain its top position. The initial number of accounts reported in 2016 appeared too low.

In retrospect, who’s to blame for the actions of Wells Fargo employees? So far, 5,300 employees have been fired. As mentioned earlier, many point to the harsh sales philosophy of the company’s former CEO, while others blame the banking industry. Many employees in banking are facing similar pressures to those that were felt at Wells Fargo. In fact, the United States may be headed into a new age of banking scandals.

According to Sheelah Kolhatkar, a writer for the New Yorker, big banks like Wells Fargo are being backed into a corner in terms of their ability to generate income as a result of the 2010 Dodd-Frank Act. Banks are required to keep large sums of capital on hand to protect against financial emergencies. The ways banks can generate money has greatly changed, as they can no longer make risky, high return investments as they did in the past.

Thus, a new revenue stream from cross selling has become popular, which is exactly what got Wells Fargo into trouble. In an attempt to maximize customers using their products, employees opened unauthorized accounts. Wells Fargo might have been the first bank to get caught, but there are potentially more scandals to follow.

Should investors be concerned? In my opinion, not necessarily. It has been reported that whistleblowers at Wells Fargo were hushed, prolonging the problem. In recognition of this, it should be mandatory that bank employees become federally trained to deal with scandals, and that incentives are provided for employees to come forward in times of corruption. Consequently, less scandals such as this would occur.

I also fear that many customers blindly trust their banks, thinking little about their money after they deposit it. They trust their bank as long as the money’s there when they check on their main account. Many customers had no idea Wells Fargo had opened accounts on their behalf for prolonged periods of time. Had they paid closer attention, they most likely would have caught the error.

If more customers do their due diligence and maintain complete control of their finances, problems such as these should not occur. Additionally, although banking is not easily accessible to everyone, the banking system should become more comprehensible to all, despite age or financial literacy.

While it’s easy to solely place blame on Wells Fargo, it is also important to take a look at the bigger picture of the brutal banking culture in the United States. With that in mind, can Wells Fargo survive this second wave of scandal? I guess we’ll wait and see.

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