course material

1. On September 13, 2021, Senator Elizabeth Warren sent FED Chair
On September 13, 2021, Senator Elizabeth Warren sent FED Chair Jerome Powell a letter
https://www.warren.senate.gov/imo/media/doc/Letter%20from%20Senator%20Warren
%20to%20Fed%20on%20Wells%20Fargo%20FHC%20Status%2009.13.2021.pdf In the
letter she wrote “Under Janet Yellen’s leadership, the Fed placed Wells Fargo under an asset
cap in 2018 due to its ‘widespread consumer abuses and other compliance breakdowns. In
the three years since then, numerous additional revelations have surface about Wells
Fargo’s continued unethical and anti-consumer conduct. These new revelations have once
again made clear that continuing to allow this giant bank with a broken culture to conduct
business in its correct form poses substantial risks to consumers and the financial
system.” Senator Warren goes on to ask that the FED revoke Wells Fargo’s status as a
financial holding company. The action would require Wells Fargo to separate its bank
subsidiary from it other financial activities. Wells Fargo is an enormous financial services
company with $1.9 trillion in assets. It serves 1 in 3 US households and 10% of US small
business. In reply to Senator Warren’s demand Well Fargo replied,
https://newsroom.wf.com/English/news-releases/news-release-details/2021/Wells-
Fargo-Affirms-Focus-on-Building-Strong-Risk-and-Control-Foundation/default.aspx In it’s
reply it cites progress achieve under the new CEO Charles Scharf, including: 1) three
business group have been split into five; 2) it has created four new functions to provide
greater oversight and transparency; 3) it has brought on board 10 new Operating
Committee members out of the total committee of 17; 4) created a new team design to
facilitate oversight of consumer practices; 5) created new enterprise wide risk assessment
with the intent to design new controls; 6) “Implemented a new incentive plan for bank
branches that is governed by stronger oversight and controls, and focused on customer
relationships.” Emphasis added by Dr. Isley. Instructions The FED continues to maintain
that Wells Fargo has not done enough to rein in the incentive failures that revealed the
failure of it corporate governance. We have seen that several of the largest conglomerate in
the US decide that it is time to divide their agglomerate groups into smaller units for focus
and function. J & J will separate it consumer products division and its pharmaceutical
division. GE will divide into three units; aviation; energy, and healthcare. It is time for
Wells Fargo to separate it’s banking business from it’s other enterprises? YES NO
Explain What is the principal-agent problem? What is the role of corporate governance?
How is corporate culture different than governance? Can incentive systems align culture

2. with governance? How might separating Wells Fargo’s banking business from it’s other
enterprises improve depositor safety? Be sure to respond to a classmate’s post.