As disclosures about fresh improprieties at Wells Fargo stream in, now seems an odd time to reduce communications between regulators and bank boards. In recent weeks, Wells has been forced to disclose that it pushed auto insurance on customers who did not need it, that it failed to refund insurance money owed to people who paid off their car loans early and that the number of fraudulent accounts created by its staff was likely to “significantly increase” from the 2.1 million that the bank had previously estimated.
The Fed is not the only government entity that thinks bank directors are under duress. A recent report from the Treasury Department said that regulators’ expectations of bank boards should be reformed “to restore balance in the relationship between regulators, boards, and bank management.”
The Fed’s recommendations are the result of work that predated the Trump administration, but they certainly dovetail with its broad deregulatory agenda. In 2014, Daniel K. Tarullo, a former Fed governor, outlined the need for change in this area. He resigned from the Fed in April.
The new Fed guidance is emerging as bank directors say they are overwhelmed by minutiae in their jobs. They often blame heightened regulation required by the Dodd-Frank Act, the law that aimed to forestall a future financial crisis.
A Fed spokesman declined to comment on the proposal; the agency has asked the public to submit views on the concept.
Here’s what the Fed wants to change: Currently, its examiners report all regulatory matters requiring corrective action to a bank’s board as well as its senior management. As the Fed explained in 2013, “communication of supervisory findings to the organization’s board of directors is an important part of the supervision of a banking organization.”
Now the Fed seems to view such findings as too much information for bank directors.
So, under the proposed guidance, it will be up to senior management to keep the institution’s board apprised of its efforts and its progress to remediate matters requiring attention. Such matters would only be directed to the board for corrective action when senior management fails to take appropriate remedial action or when the board needs to address its corporate governance responsibilities, the Fed said.