Establishing a living will by the age of 40 is generally recommended by most estate lawyers. However, banks don’t have this flexibility, and thanks to a simple lack of preparation, Wells Fargo is coming under fire.
The federal government requires major banks to set up a “living will” of sorts. These official plans outline how the bank would continue to run and pay their employees in the case of a bankruptcy or systemic failure. These emergency documents are required under the 2010 Dodd-Frank Act, which requires “Too Big To Fail” banks to fill out plans — that usually run thousands of pages in length — detailing how they can save themselves and the economy at large in case of insolvency. Of the major banks that filed these plans, including JP Morgan Chase and Bank of America, Wells Fargo was the only establishment nationwide not to be approved.
Last December, the Federal Deposit Insurance Corporation and the Federal Reserve discovered that Wells Fargo didn’t actually have these plans in place, and created restrictions as a way to force the company into making this emergency plan.
Specifically, regulators reported that Wells Fargo did not establish their specific legal structure or what would happen to smaller subsidiaries if their parent company (Wells Fargo itself) ceased to function. Since the living will was denied twice already, regulators limited Wells Fargo’s growth and lending activities.
But now, these regulations have been lifted. Wells Fargo has finally and publicly submitted an updated living will, and federal regulators have given the nationwide lender a green light to continue their activities as normal.
These bank restrictions came at an embarrassing time for Wells Fargo. Last year, the bank came under intense scrutiny after its employees were caught creating over two million fraudulent bank accounts without customer approval. The fallout from this resulted in a payout of about $142 million in customer lawsuits and an ongoing scandal. Not to mention, last September the bank was sanctioned for improperly repossessing cars belonging to military family members.
So it is safe to say that Wells Fargo isn’t having a great year in the public relations front. And considering that only 47% of Americans trust their bank, Wells Fargo could be facing a serious crisis of confidence among consumers.
It’s important to note that while the bank’s living will was finally approved by the feds, it was only cleared for the 2016 year. Wells Fargo must now update and refile their 2017 living will by July.
However, there is one positive takeaway in this storm of controversy — Wells Fargo stock has jumped after the announcement was made that the regulations were lifted.