In Blog Eric Frazier

The Great Recession created a deep mistrust of the US financial system. After the failures of massive banks and the market crash spread around the world, there has been a push for stronger regulations as well as closer supervision of banks. As such, Federal Reserve has been working steadily to avoid another financial crisis by taking enforcement actions against institutions that engage in unlawful practices and put in danger US citizens.

As the central bank of the United States, the Federal Reserve has the power to oversee and control “state member banks, bank holding companies, branches and agencies of foreign banking organizations operating in the United States and their parent banks, officers, among many others. The Fed can issue enforcement actions against of these institutions should any of them break any “laws, rules, or regulations, unsafe or unsound practices, breaches of fiduciary duty, and violations of final orders”

Recently the New York branch  of British bank Barclays appeared in the headlines as the Fed announced the termination of the Cease and Desist Order[1] that was issued against the bank in August 2010 for engaging in practices with clients hailing from sanctioned nations.

The bank was forced to pay a  $298m fine for facilitating payments between by countries including Cuba, Iran, Libya, Sudan and Burma which were at the under sanctions by the US government.  Barclays was just one of the many European banks that were sanctioned such as Lloyds TSB and Credit Suisse.

The Fed has also taken actions against American banks, most prominent of which is Wells Fargo. On April 20, 2018 agency imposed a fine of a billion dollars against the bank[2], the largest of such measures since the 2008 Financial Crisis.

The bank was sanctioned for unlawful actions against mortgage holders, auto loan borrowers and risk management, especially for charging customers unnecessary auto-insurance and later reposing their cars.[3]

Another enforcement action against the bank is the growth cap that prevents the bank from expanding its assets beyond $1.95 trillion. Yet the bank is still waiting for a vote from Federal Reserve Board of Governors to see if the sanctions can be lifted, a move that could happen as late as April 2019.

There are those who insist in stronger sanctions against the megabank. Democrat Rep. Maxine Waters said that, “I have been clear in the past that fines are not sufficient in addressing the pattern of illegal behavior by Wells Fargo, and this action still does not put the bank’s past behavior to rest.”

Despite recent efforts the Fed, there are those who believe that there is looming financial crisis. According to American Enterprise Institute scholar, Desmond Lachman[4], low interest rates and high global debt will bring the US economy into overheating and inflation. According to him, The Fed is in the difficult position of raising the interest rate and risking bursting the global asset price bubble or delaying the interest rate and seem weak against the inflation threat.

Since The Great Recession, the Federal Reserve has done its best to protect consumers and punish banks that engage in unlawful practices while tries its best to avert the next crises. Yet, the fear of a next financial crisis is still the collective consciousness and should not be taken lightly.

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[1] https://www.ft.com/content/6918f646-a96b-11df-a6f2-00144feabdc0
[2] http://www.latimes.com/business/la-fi-wells-fargo-penalty-20180420-story.html
[3] http://www.latimes.com/business/technology/la-fi-wells-fargo-insurance-20170728-story.html
[4] https://www.usnews.com/opinion/economic-intelligence/articles/2018-02-14/us-economy-is-in-danger-of-overheating-and-exploding-into-financial-crisis
Eric Lawrence Frazier MBA
President and CEO 

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