Change Pays

By Doug Farmer —

Of all the unpopular things to do these days, defending Wells Fargo may top the list. To be clear: The discussion herein ties to events from close to a decade ago. The ongoing scandal involving improperly-opened accounts is not only reprehensible, but the bank’s response has also been lacking.

Long before that, though, Wells Fargo was the one bank that tried to do the right thing as the recession took hold in the fall of 2008. In that rare instance, the right thing economically coincided with the right thing morally.

In its attempt to stave off the devastation wrought by the pending recession, the U.S. government authorized the $700 billion Troubled Asset Relief Program (TARP)—later reduced to $475 billion by the Dodd-Frank Act, of which $431 billion was distributed—to secure residential or commercial obligations in hopes of stabilizing the economy. The first thankful recipients were to be the country’s biggest banks, including Wells Fargo.

Its then-CEO Dick Kovacevich looked at the supposedly-generous offer and knew he wanted no part of it. Wells Fargo was not in danger of failing. It was, in fact, putting the finishing touches on purchasing Wachovia Bank as the financial crisis crippled Wachovia. Why would Wells Fargo want to take a $25 billion government loan to be paid back with interest when it did not need one? Not only did it not make business sense, it did not make public relations sense, either.

“By giving capital to all banks, even the sound ones that didn’t want it, [it] would be seen as a sign that even healthy banks were in trouble and that confidence levels would decline,” he said four years later. “All boats would fall.”

Sure enough, financial stocks fell 80 percent within three months of the eight industrial behemoths accepting the funds.

Why did Wells Fargo take the money if it was such a bad idea? Kovacevich has described it as a godfather offer, one he could not refuse, considering it came from Secretary of the Treasury Hank Paulson with Fed Chairman Ben Bernanke sitting next to him. In other words, the two government officials with the most oversight over Wells Fargo were giving Kovacevich a directive.

As far as Paulson and Bernanke were concerned, the government had now done its part to help the economy. If there ever was a fiction passed off as news, it was that.

By funneling those funds to the big banks, most of which did not actually need the aid, the government deprived community banks access to that potential lifesaver. If you know a bank in Wisconsin that has closed its doors in the last nine years, odds are it would have benefited from TARP funding. Instead, it was deemed too small potatoes for the effort.

Rather, the government only furthered the growth of big banks. Deeming them too big to fail, federal intervention made them only bigger. Per usual, the regulatory efforts to help the economy focused solely on the biggest banks and not the rest of the industry, only exacerbating the original flaws.

Doug Farmer has worked at Park Bank since 1981 and began his term on the State of Wisconsin Banking Review Board in 2003. He’s lived in La Crosse since 1971. You can reach him at

Park Bank Logo

Home | Business | Auto
Ready to Lend a Helping Hand
Holmen | La Crosse | Sparta