WASHINGTON — Federal Reserve Chair Janet Yellen pushed back Wednesday against the idea that big banks are "too big to manage," a notion that has gained steam among bank critics in the wake of revelations that thousands of Wells Fargo employees opened fraudulent accounts over the course of several years.
"We have high expectations for what we expect to be in place in a large organization or any banking organization," Yellen said. "I'm not endorsing a general conclusion that banks of that size are too big to manage. I don't think these are impossible standards to meet."
Yellen added that, because the fraud occurred at the level of Wells' national bank, the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau had primary jurisdiction over the civil enforcement actions that led to a $190 million settlement earlier this month. But she said that "this will be a particular focus of our supervision going forward over next year" or more.
Yellen's remarks come a day after Wells Chief Executive John Stumpf was hammered in the Senate Banking Committee by members of both parties. Sen. Elizabeth Warren, D-Mass., called on him to resign and Sen. Patrick Toomey, R-Pa., said it was "a stretch to believe" Stumpf's explanation that the fraud was perpetrated solely by the 5,300 terminated low-level employees.
The scandal has even percolated into the presidential campaign, with Democratic nominee Hillary Clinton releasing an open letter Tuesday calling Wells' conduct "outrageous" and saying that if the bank can't be expected to know whether it is perpetrating fraud on this scale, it should be broken down to a size that can be managed.
"Executives should be held individually accountable when rampant illegal activity happens on their watch," Clinton said. "And if any bank can't be managed effectively, it should be broken up."
Fed Gov. Daniel Tarullo also said earlier this month that the Wells scandal illustrated that banks need to be more "proactive" in their pursuit of a compliant and law-abiding culture within their ranks, and that regulators should put "a focus on individuals as well as the fines put on the institutions" to punish wrongdoers.
The Federal Open Market Committee decided to maintain its target federal funds rate at between 0.25% and 0.5% despite some speculation in recent weeks that the committee might hike the target range up another 0.25% at the September meeting because of improving labor market conditions and increasing concern about low rates driving up equity prices. Three committee members did dissent from the majority decision: Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren.
The committee's estimates for year-end interest rates appear to have congealed somewhat, with 10 of the 17 members expecting the year-end federal funds rate to be between 0.5% and 0.75%. With only one more "live" meeting left in the year — that is, one where Yellen will hold a press conference — it is an increasingly safe assumption that the FOMC will raise rates by 25 basis points during that meeting. Three members expected rates to remain unchanged at between 0.25% and 0.5%, while another three members expected the rate to rise to between 0.75% and 1%. A single member expected rates to end the year above 1%.
It also seems that the committee remains skeptical of a faster ramp-up in 2017. Seven members expected the year-end 2017 rate to be between 1% and 1.25% — suggesting only three rate hikes between now and December 2017. Another seven members expected the 2017 year-end rate to settle between 1.25% and 2.25%, with the rest seeing rates remain below 1%. Expectations for the long-term "neutral" funds rate have also fallen over the course of the year, with 15 of the 17 members seeing the long-term neutral rate between 2.5% and 3%.
The FOMC's economic projections for this year worsened somewhat between the June meeting and the September meeting. The committee revised down its projection for 2016 growth from 2% to 1.8% while revising up its estimate of unemployment to 4.8% from 4.7%. The committee also estimated personal consumption expenditure inflation down from 1.4% to 1.3%, while estimating that core inflation was unchanged at 1.7%. Those figures suggest a less optimistic near-term outlook, though the estimates for 2017, 2018 and 2019 were substantially unchanged.