Yellen Pledges To Scrutinize Big Banks Following Wells Fargo's Scandal

According to the Wall Street Journal, Federal Reserve Chairwomen Janet Yellen said that the central bank will scrutinize all big banks following the Wells Fargo & Co (NYSE: WFC) scandal in which millions of phony bank accounts were created for clients without their knowledge or desire.

Speaking to the House Financial Services Committee, Yellen was asked if the central bank addressed the risks posed by large banks. Several Democrats argued that the scandal is confirmation that certain banks are too big to manage and should be broken up.

"We are undertaking a look comprehensively not only in the consumer area but compliance generally because there have been a very disturbing pattern of violations" in businesses such as mortgage lending and foreign-exchange, she was quoted by the Wall Street Journal as saying.

Rep. Brad Sherman (D–Calif.) was quoted by the Wall Street Journal as saying that Wells Fargo "has identified two additional reasons to break these institutions up." First, by creating an incentive that tempted employees to create fake accounts, and second, for failing to change this system when the fraud became known internally.

Rep. Stephen Lynch (D–Mass.) told Yellen the Fed needs to hold bank executives accountable and pleaded with the central bank boss to "make their life hell."

If Yellen thought that she was grilled by U.S. lawmakers, then Wells Fargo's CEO John Stumpf will likely be in for a rough ride. The House Financial Services Committee will hold a hearing with Stumpf on Thursday and he will provide a testimony.

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