Photo: European Pressphoto Agency
The Wells Fargo Standard
Imagine if the Treasury Secretary had to live by new rules for banks.
Democrats are waging a non-stop campaign to punish bank executives for misconduct, both real and imagined. After revelations that Wells Fargo WFC 0.04 % fired thousands of employees for setting up accounts without customer permission, Massachusetts Sen. Elizabeth Warren and her colleagues were howling this week for Wells to claw back bonuses that had been paid to senior executives. Awkwardly for Ms. Warren and her colleagues, Rep. Scott Garrett (R., N.J.) decided to pursue this line of argument a little too vigorously for Democratic tastes.
At a hearing this week in the House Financial Services Committee, Mr. Garrett asked Treasury Secretary Jack Lew, who helped preside over a titanic financial disaster at Citigroup C 0.08 % in 2008, whether the bank had clawed back any of his compensation.
YouTube viewers may be entertained watching the video of this exchange, in which Mr. Lew makes every effort to avoid answering the simple question. At one point the former chief operating officer of two troubled Citi units says, “I was responsible for administrative activities, not for designing risk products so let’s just remember what my role was.”
How could any lawmakers possibly remember his role? Mr. Lew spent the weeks before his 2013 Senate confirmation saying he couldn’t even recall the details of investments that blew up on his watch.
What makes this so awkward is not merely that Sen. Warren and her Democratic colleagues overwhelmingly voted to confirm Mr. Lew to run the Treasury. And it’s not merely that many of the regulators on Mr. Lew’s Financial Stability Oversight Council are now drafting clawback rules that other, less politically connected, bankers will have to live by.
There’s also the issue of scale. Jack Lew’s Citigroup consumed a series of multi-billion-dollar taxpayer bailouts and helped trigger a world-wide financial panic. Wells Fargo mistreated its customers, but its $2.6 million in remediation for those affected is a rounding error at a bank with $86 billion in annual revenue. If J.P. Morgan JPM -0.21 % ’s famous 2012 trading loss was triggered by a “London whale,” as a financial matter this is the San Francisco minnow.
Mr. Garrett sums up the lesson for bankers when he says that “so long as you’re a high-ranking Democratic official, you can make all the money that you want on Wall Street but if you’re not one of them then you have to play by the rules if the company collapses.”