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Wells Fargo CEO Charlie Scharf appeared to express impatience Wednesday that big banks are in a holding pattern against regulators’ rule on capital requirements, calling the uncertainty “a crazy way to screw up a system.” run.”
“We absolutely want it to be completed,” Scharf said of the Basel III endgame, during an appearance at an annual Goldman Sachs financial services conference in New York. “It’s just a strange position we’re in because some of the most important companies in this country aren’t sure what their capital requirements are going to be.”
The fate of the capital requirements proposal was uncertain, and may become even more uncertain with the re-election of Donald Trump. The proposed rule, first floated in July 2023would have increased the amount of capital the country’s largest banks must hold by about 19%. Following a strong industry response, Federal Reserve Vice Chairman for Supervision Michael Barr has previewed possible changes that would bring that down to 9%. But it turned out not to be all bankrupt supervisors were on the same page about those changes.
Days after Trump’s re-election, regulators acknowledged that the proposal is unlikely to advance during outgoing President Joe Biden’s term. Barr told the House Financial Services Committee the central bank expects to work with new colleagues from the Office of the Comptroller of the currency and the Federal Deposit Insurance Corp. in the coming year. to work on the proposal.
That has led to industry speculation about what the capital requirements rule – intended to bring the US in line with Basel standards – will ultimately look like, if and when regulators move forward with it.
Wells Fargo is seeking “closure” on the issue and wants regulators to approach the issue thoughtfully, “based on an analysis of: If things need to change to get to a final answer, what should it be?” Scharf said.
The CEO said he is “hopeful” the industry will get that, although he is unsure of the timing of the capital requirements rule given the supposed leadership changes at the OCC and the FDIC board.
“Hopefully, as these positions are filled, we will get to a final Basel III, which ultimately makes sense,” he said.
Scharf said he’s optimistic the end result won’t be much different from where Wells is now. The bank’s common equity Tier 1 ratio amounted to 11.3% in the third quarterand will likely remain around 11% until the bank gets more clarity on the rule, Scharf said. Once completed, Wells will be able to speak with more certainty about capital levels, he added.
As for the work Wells continues to do to address risk management and control deficiencies identified by regulators, Scharf expressed confidence and said he strongly believes the bank is making “extremely good progress.”
The bank remains subject to nine consent orders, including a $1.95 trillion asset ceiling imposed by the Fed in 2018; Bloomberg reported this the bank has submitted a third-party review of the changes it made for the Fed to consider. The latest from the bank enforcement action came in September, related to deficiencies in internal anti-money laundering controls and financial crime risk management practices.
From an audit perspective, the company is in a different place today than when Scharf joined the bank in 2019, but Wells remains committed to completing all necessary work, he said.
“We have a very high degree of confidence that we will get there in a reasonable timeframe,” he said. Since Scharf became CEO, six consent orders have been withdrawn.
For each consent order and regulatory outcome, “we created extremely detailed plans that the regulators reviewed. And we monitor our progress every week with the operating committee,” he said.
As the bank adds controls and compliance measures, it goes through detailed review processes to validate the work before seeking validation from regulators.
“When I talk with a higher degree of confidence that we’re getting things done, we’re getting things across the finish line because we see all those internal metrics,” Scharf said.
These changes translate into better management of operational risk and compliance within the business, and create a framework that gives the bank the confidence to grow, he said.
“We identify the problems ourselves, we fix them like normal businesses do before they become bigger problems specific to us – you just see it in terms of our operational errors that come down to the income statement over the course of of the times,” Scharf said.
The OCC cancellation the Sales Practices Consent Order in February was “huge” for Wells’ consumer bank, Scharf said. “When we think about the problems we’ve had, that’s been the most visible” to American consumers.
“It forced us to undo a lot of things that were really related to the way the consumer and small business bank was run,” he said. Wells “eliminated the compensation plans, we eliminated the industry [profit and loss statements]we eliminated the messaging that could potentially encourage people to sell things, because there was a big question mark: where did we have the right controls? he said.
With the right controls in place, the bank can be confident these elements are being restored in a measured manner to help drive the bank’s growth, he said.
“We’ve been fighting to keep the same share that we had because we’ve taken all these things away,” Scharf said, pointing to the market share gains that other large national banks have made while operating without the same. limitations as Wells.
Wells sees the beginning of net growth in checking accounts and payment card points of sale, he noted.
“We get questions all the time: ‘Are the regulators actually going to release you from these things?’” Scharf said. “I can say yes all I want,” but something like that “is an incredibly important statement.”
