Thank you for your patience, without objection the chair is authorized to declare recess of the committee at any time. This hearing is entitled holding wells fargo accountable, examining the role of the board of directors in the banks egregious pattern of consumer abuses i now recognize myself for four minutes to give an Opening Statement. Today we receive testimony from ms. Elizabeth duke and mr. James quigley who until earlier this week served as chair of the board of directors of wells fargo and company and Wells Fargo Bank respectively. Both have resigned after our call for their resignations following the release of a scathing majority staff report on wells fargos compliance failures and their individual failures as Board Members. But their resignations do not absolve them of their failures. Directors at wells fargo and institutions across this country must understand that they are the last line of defense when it comes to protecting their companys shareholders, employees and customers. And while ms. Duke and mr. Quigley said they resigned to quote avoid distraction, unquote, let me be clear, this is not a distraction. Were examining misconduct and dereliction of duty. Over the past decade, wells fargos Board Management and regulators have all failed to fix the companys internal control weaknesses that caused enormous harm for millions of consumers throughout the country. The majority staffs report examines wells fargos compliance with five Consent Orders that require the companys board and management to clean up the systemic weakness that has led to widespread consumer abuses and compliance break downs as Board Members, ms. Duke and mr. Quigley were responsible for ensuring that wells fargos ceo and other management executed an Effective Program to manage those risks. However, the majority staff report found that wells fargos board, number one, failed to insurer management could competently address the Risk Management of deficiencies, allowed management to repeatedly submit materially deficient plans to address consumer abuses, prioritize financial considerations over fixing consumer abuses and did not hold Senior Management accountable for repeated failures. The majority staffs report also revealed attitudes and failures on the part of ms. Duke and mr. Quigley that are dismaying. When the Consumer FinancialProtection Bureau included ms. Duke on letters requested actions from the bank, she responded by asking and i quote, why are you sending it to me, the board, rather than the department manager, unquote. This was surprising to see officials and gives the appearance of an evil mentality from ms. Dukes and an unwillingness to kpeeexercise t oversight required of her as a member of the board. Mr. Quigley also did not appear to understand the gravity of his board responsibilities. When the office of the controller of the currency wanted to schedule a meeting with the banks directors to discuss quote progress and accountability unquote, mr. Quigley told other Bank Officials that he was, and i quote, currently scheduled to be away on vacation in some islands on those dates, unquote, and commented that quote the sense of urgency is surprising unquote. These statements were made after several public Enforcement Actions against wells fargo for massive consumer abuse scandals, while ms. Duke and mr. Quigley have resigned, they must be held accountable for the dereliction of their duties as members of wells fargos board. I now recognize the Ranking Member of the committee, the gentleman from north carolina, mr. Mchenry for four minutes. Thank you, madame chair, thank you for holding this hearing, and thank you to our witnesses for voluntarily complying with the request to appear. Todays hearing and the legislative proposals attached to it would make rahm emanuel proud. He once said you never want a serious crisis to go to waste. Make no mistake, wells fargo has been in crisis mode for a while now. Well hear more about the makings of that crisis today from our witnesses. They had a front row seat. Theyre a part of the problem in many respects. In that spirit, the democrats followed Rahm Emanuels advice, and rolled out policy proposals that would do everything from expand the scope of authority to automatically downsize certain banks and from those proposals, it has complete lack of connection with evidence before us in the example of wells fargo. We found that with wells fargo, the problem wasnt the cfpb lacked certain authority. The problem was that the cfpb ignored a series of red flags at wa wells fargo. It was under Richard Cordrays leadership of the cfpb. We found it wasnt that wells fargo is too big to manage, the problem was it was deeply mismanaged. My colleagues on the other side of the aisle also have some ideas about the standards to which we should hold Board Members. How about we start with the proper Legal Framework and the standards that shareholders in the courts use. So lets start there. Lets walk through those. Under the law, members of a Corporate Board of directors owed three fiduciary duties, the duty of care, the duty of loyalty, and the duty of good faith. Those concepts arent very complicated. Directors must be diligent, they must subordinate their personal interests beneath the interests of the company, and they have to act in the best interest of the shareholders. Those standards make sense because at the end of the day, directors represent the interests of the shareholders. Shareholders expect the board to do three basic things. First hold management accountable. Second, push back when management provides incomplete or overly optimistic information, and third, make sure the company has the right leaders in place. It looks like based on what we have heard yesterday from mr. Shareef, the board might have finally got that last one right. The question of leadership. But, we have a lot of questions today about everything leading up to the boards decision to elect mr. Sharf. We need to know why the board chose a Company Insider to lead wells fargo back in 2016. We need to hear why the board failed to recognize that management wasnt fixing the companys problems. And we need to hear why the board stood behind that Management Team for so long until the Trump Administrations regulators forced change. I think there is a lot that we can learn to ensure that new Decision Makers deliver on the much needed changes to this institution. I look forward to your answers today about this history and thank you, madame chair for hosting this hearing, and i look forward to the questions. Thank you very much. I now recognize the chair of the subcommittee on oversight and investigations, mr. Green, for one minute. Thank you, madame chair. Madame chair, the evidence speaks for itself. I have an article styled 35 bankers were sent to prison for financial crisis crimes. Bankers can go to jail. They can be held accountable. This is from cnn business on april 28th, 2016. Many of these crimes involved relatively small amounts of money at smaller banks. Smaller banks pay a price. Big banks pay off the government. 3 billion in fines paid by wells fargo, a bank that has demonstrated that it would commit fraud. Nbc news article february 21st. I also have an article styled violation Tracker Company summary, this is from good jobs and the total amount of penalties that wells fargo that has paid since 2000 amounts to 17,296,835,949. The evidence speaks for itself, wells fargo has been running a criminal enterprise. I now recognize the subcommittees Ranking Member mr. Barn for one woman. Thank you chairwoman waters and Ranking Member henry, ms. Duke, mr. Quigley, youll testify to the committee today in your capacity as former Board Members of wells fargo. Let me be clear about two things. First, its clear that the board made some mistakes. We heard yesterday how important new leadership is to the company and i think the board will also benefit from fresh perspectives. Second, decisions about whether Certain Directors should continue to serve are for shareholders to make. Congress should not substitute its judgment for theirs. The chairwomans call for witnesses to resign was inappropriate, and im sorry youre here under these circumstances. The republicans report highlights a series of missteps by the board since 2016, and i will address those in my questioning shortly. But right now, i wish to emphasize what the Ranking Member said yesterday, there are pressing issues affecting our economy that this committee should focus on. Instead, we are spending time, energy, and resources speaking to two former Board Members of a Company Whose ceo testified yesterday. I yield back. I want to welcome todays witnesses. Until earlier this week, Elizabeth Duke was the chair of the board of directors of wells fargo and company. Prior to joining wells fargos board, ms. Dukes served a number of positions including as a member of the board of governors of the Federal Reserve system. Also earlier this week, mr. James quigley served as both a director of wells fargo and company and as the independent chairman of Wells Fargo Bank. Concurrently with his service as a director of wells fargo and chair Wells Fargo Bank, mr. Quigley served and continues to serve as the chairman of the board of Hess Corporation and director of the board of meramec pharmaceuticals while ms. Duke and mr. Quigley no longer serve on wells fargos board, it is my expectation that they will be forth coming in their testimony and responses to members questions today. Without objection, all of the witnesses written statements will be made part of the record. Before we begin, i would like to swear the witnesses in. Ms. Duke and mr. Quigley, please stand and raise your right hand. Do you solemnly swear to affirm that the testimony you will give before this committee in the manners now under consideration will be the truth, the whole truth, and nothing but the truth so help you god. Thank you. Let the record show that the witnesses answered in the affirmative. You may sit now. Each of you will have five minutes to summarize your testimony. When you have one minute remaining, a yellow light will appear. At that time, i would ask you to wrap up your testimony so we can be respectful of the Committee Members time. Ms. Duke, you are now recognized for five minutes to present your oral testimony. Chairwoman waters, Ranking Member mchenry, and members of the committee. Thank you for inviting us to testify at todays hearing. With heightened volatility in financial markets, a strong wells fargo is needed now more than ever. Transformational changes are getting traction inside the company with strong new leadership and management. I believe that today the company has the right team and path forward to be fully deserving of the trust customers place in us every day. Over the past several days, however, it became clear to my colleague jim quigley and me that the recent attention on our leadership o. Board couf the bo hinder the ability of the company and its new ceo to turn the page and focus on the future, and this company must move forward. For this reason last sunday we informed our board colleagues of our decision to resign effective immediately. Were confident that the board has all the necessary experience and skill sets to smoothly manage the leadership transition. When i look at wells fargo today i see a Community Bank that under meramec focuses on customers rather than sales. I see a fully transformed board with structural changes that improve the boards governance and effectiveness. I see an executive Management Team that balances a new approach with institutional knowledge. I see a Risk Management team and a risk platform that is under construction from the ground up. And i see a ceo with the ability to execute on the significant remaining work necessary to meet the companys regulatory commitments. Every since the board learned the truth about what was going on inside wells fargo, it has been continuously and dopeeeply engaged in understanding the problems and their solutions and insisting on action. I served on the Board Committee that investigated sales practices. Not only was i appalled by the harm to customers, but i was sickened to hear how our employees were treated by their managers. I started as a teller and a new accounts representative, and identified with those employees. Our investigation of sales practices was thorough and unfettered. Our attorneys conducted a hundred interviews, reviewed interview notes from over a thousand more. Collected 35 million documents from over 300 custodians. We instructed them to brief regulators, government agencies, and the staff of this committee to assist in your own investigations. The appendix my written testimony provides a comparison of our findings and those of the occ, sec, and the doj. The work to truly and sustainably address the root of the problems, has taken time to implement, more time than anyone anticipated and more time than any of us, especially the board of directors would have liked. I get the frustration of this committee and our regulators, comes through loud and clear in the reports. Nobody is frustrated that the bank has not satisfied the concert orders we entered into. As members o. Committee, overseeing consent over work, jim and i grilled staff and management about every detail on a monthly basis and were confident the board will continue to hold management accountable until the job is finished. Throughout our tenure on the board however we remain mindful that the board cannot supplant management in the administration of the enterprise. Consistent with widely accepted principles of corporate golfffe ma in accordance, to governance, to select a well qualified ceo, monitor the ceos performance, and not to micro manage the business include could daytoday execution of the Consent Order requirements. Recognizing the critical importance of the responsibility to select a well qualified ceo, i appointed jim to lead the ceo search that resulted in the high hiring of charlie, you heard from charlie yesterday about hiss plans and timetables going forward. We know that our former colleagues on the board are determined to provide him the space and support to complete the work. We are no longer able to speak on behalf of wells fargo or address the companys questions about the Company Going forward. Were also constrained by the scope of regulators waivers of their confidential supervisory privilege but within those limitations we are here to answer your questions to the best of our ability. Thank you. Thank you, mr. Quigley. You are now recognized for five minutes. Chairwoman waters, Ranking Member mchenry, and members of the committee, im here to share my perspectives as a former member of the board of wells fargo. On the banks commitment to its customers to restore its brand and to realize its aspirational vision and purpose. As the committee is aware, i decided to resign from the board to permit the bank to turn the page and move forward with a focus on its future. I brought to my role as a wells fargo board member a deep conviction in the values of trust and confidence. I learned those from my parents. Restoring Customer Trust and confidence in wells fargo was our most important priority. After we learned of the egregious sales practices. In her written testimony, ms. Duke has detailed many of the transformational changes that the board has overseen in our efforts to do Everything Possible to ensure that similar problems never happen again. And while theres more to be done, undeniably, i believe wells fargo is making progress. Id like to highlight two changes that are particularly important to me. First, the board oversaw a Huge Investment to strengthen the compliance function of wells fargo. One of my roles at deloitte was leading the Manufacturing Group so leading the Manufacturing Group so i understand the importance of zero defects. I know why its critical to do it right the first time. And i carried that thinking with me to my governance and oversight role at wells fargo. I wanted zero customer harm. And if it ever occurred, i wanted it detected through the banks control and monitoring processes and remediated as quickly as humanly possible. As you heard from mr. Scharf yesterday, the banks compliance teams have added more than 3,300 employees since the end of 2017. More than doubling the size of that fufrpnction in less than te years. Second, the board encouraged and supported the changes in Senior Management of the bank. Bringing new capability and stimulating cultural change. Since 2006, wells fargo has hired a new chief operating officer, chief risk officer, general counsel, chief auditor, chief compliance officer, head of hr, and head of technology. I, personally, devoted much of 2019 to leading the search for a new ceo. And im confident that we selected the best candidate to lead the bank. Because i believe deeply in the Critical Role of culture in an organization like wells fargo, i was especially supportive of the culture mr. Scharf is working to establish, one with clear priorities. Bestinclass standards of Operational Excellence and integrity. A unified bank with clear line of sight across the business, accountability of management. And most important of all, a renewed commitment to completing the work of doing right by our customers and satisfying our regulators. The cultural and structural changes that are necessary to address the banks challenges are far reaching. We believe that getting those things right and in a way that would provide lasting change, ultimately, serves customers and employees better than doing them quickly. I believe the changes we oversaw will make wells fargo stronger, more reliable, and more deserving of Customer Trust. And while there is still more to do, i am confident the companys moving in the right direction. Because i am no longer a member of the companys board, i cannot speak for the board today. I have my personal reflections, including the importance of distinct and separate roles for management and the board. The board must oversee the companys management and Business Strategies but it cannot replace or the job of management and that principle was critical to me during my tenure at wells fargo. In my testimony today, i must also respect the limits on my ability to disclose Confidential Bank supervisory information. The regulators have not provided full csi waivers and i need to be particularly careful to stay within the limits of the waivers we have received. Within those constraints, i look forward to answering the committees questions. Thank you very much. And i appreciate your presence here today. Let me start by asking asking ms. Duke, how many years have you served wells fargo on the board . Five years. Five years. Mr. Quigley, how many years . Six. Six years. Are you compensated for serving on the board . Yes, we are. How much is your compensation . My compensation, in the last year, was somewhere around 630,000. 600 and how much . 30,000. Mr. Quigley, how much was your compensation . 417,000 last year. Thank you very much. I want to get into the majority stats report. Ms. Duke, how did you prepare for todays hearing . Did you read the majority staffs report . I did. Mr. Quigley, how did you prepare for todays hearing . Did you read the majority staffs report . Yes. Ms. Duke and mr. Quigley, you stated that you resigned from the board, quote, out of continued loyalty to wells fargo and ongoing commitment to serve our customers and employees, unquote. And to, quote, avoid distraction that could impede the banks future progress, unquote. Ms. Duke, mr. Quigley, notably absent from your resignation announcement is any acknowledgment of responsibility for the multitude of board failures documented in the majority staffs report. Do you disagree that, as board chairs, you are responsible for the boards approval upon quality Consent Order submissions and failure to hold ineffective leaders like former Ceo Tim Sloan accountable . Ms. Duke . Thank you, chairwoman. I i believe, wholeheartedly, that we, both, spent the time, used our judgment, did the inquiries, and did our job as thoroughly and as completely as we possibly could. I and made decisions in accordance with our best judgment about what was the best course of action for the company. Our role in reviewing the Consent Order submissions was in reviewing them from a very high level. The any of the the deficiencies that were in the details of those submissions are the responsibility of management. Thank you. Are you aware that wells fargo has paid out 17 billion since 2008, i believe, on settlements because of fraud, wrongdoing, and other kinds of problems of the bank . Are you aware of that . I would take that to be true. I dont know the total dollar amount. Mr. Quigley, how were you made aware of each of these problems that ended up in the hands of our regulators . Where wells fargo had to pay out these settlements. How did they come before the board . Did you know about each of them . I was aware and was informed as a result of being the chairman of the Audit Committee and the judgments that are required in preparing timely, reliable Financial Information. And the need to be able to estimate when an obligation is probable and measurable, and needed to be recognized in those financial statements. I was also a member of the Risk Committee. And a member of the Regulatory Compliance and oversight committee. And management was transparent with us as those items were maturing and moving forward. Werent you shocked when, time and time again, you were confronted with these scandals that were being presented to the board . And they continued right up through the today. The sales practice abuses were very troubling to me. And shocked perhaps is not an overstatement of how i felt when i was made aware that, in fact, those practices were something far more than had earlier been provided to us. So doesnt the majority staff report demonstrate your dereliction of duty as board chairs to ensure that the company submitted comprehensive plans that met all of the requirements of the orders . Do you take responsibility for that . I, absolutely, agree with what Ranking Member mchenry pointed out on what is the duty of care, and what is the business judgment rule . And how can a board member be properly informed on matters that are clearly management responsibility. I emphasized in my Opening Statement that i believe Effective Governance requires clear separation between management and the board. And anytime those lines get blurred, i believe the enterprise becomes less safe and less sound. So are you saying to me you do have considerate dereliction of your duty to wells fargos shareholders and its customers in dealing with these Consent Orders . You are trying to talk, now, about making sure that there are clear lines between the board and management. And separate yourself from some of the management responsibilities. Dont you think it was a dereliction of duties not to be on top of all of this . I know what ive done as a board member of wells fargo. And i am comfortable with that work. And the way that ive performed that role. I did my very best. I could do nothing more. And the company deserved nothing less. Thank you. My time is up. And the gentleman from north carolina. Ranking member mr. Mchenry. Mr. Quigley, you are in charge of the Audit Committee . There was never any question about the quality of the Financial Information provided. There is severe decision severe negative consequences for management decisions made and board decisions as it relates to management. So lets get to this question of fiduciary duty. Ms. Duke, youre a chairman of the board so i want to start with you. Mr. Quigley says that the terminology i use on fiduciary duty for Board Members is approximately right, do you agree . I do. Okay. So that responsibility to ensure that the company is managed appropriately is a key component of that. Thats correct. Okay. So the boards responsibilities, under the Consent Orders that chairwoman waters was mentioned the Consent Orders what was the boards responsibility under the Consent Orders . The boards responsibility, under the Consent Orders, was to review and make sure that the submissions were were submitted and to review quarterly progress reports for submission to the regulators for the occ and for the fed. For the cfpb, the frequency was a little bit different but it was the same responsibility. Okay. So what does it mean when a regulator rejects a submission made by the bank from a material deficiencies . So it means that the bank has to correct those deficiencies. Has to address those issues. So both the cfpb and december 2019 and the occ in july of 2019 referred to deficiencies. It was based off the quality of the submissions. So did the cfpb ever reject the banks submissions . I dont remember receiving the answer is yes. The answer is yes. They rejected theres never been a submission to the cfpb that was fully accepted. We have never received nonobjection from the cfpb on the Consent Orders that were committed. Nonobjection . That was the regulatory term. Sure. So there were deficiencies in the quality of submissions, is that correct . Material deficiencies is the term. The answer is yes. Yes. Okay. Did the occ ever reject the banks submissions . Again, the answer is yes. Herein lies the problem. When the board and the board chair cannot answer this question, that under the Consent Orders with the federal government, that the board had a requirement to review these plans, i am asking you a very basic question. I was going to my hope was that i could get to my point here. And you wont even answer yes when it was clear that the board decision here, that there are material deficiencies from every one of your regulators and the submissions you had. So let me move on. The Federal Reserve also rejected your submissions. Im not going to ask for a response. The answer is yes. Well move on. So and since you are a former governor of the Federal Reserve, i think that is a particular concern. So what efforts did the board make to remedy the deficient submissions . So we reviewed the submissions. We discuss with the regulators what the deficiencies were. We had the management begin to work on resubmissions. We reviewed those resubmissions. The resubmission to the Federal Reserve was submitted. It came back with portions of the Consent Order being put into three buckets. Generally acceptable. Partially acceptable. And not acceptable. With respect to paragraph two, the paragraph that covers the boards effectiveness, there were all of them were generally acceptable, with the exception of three, which were partially acceptable. On paragraph three, there were several that were partially acceptable. I believe one that was generally acceptable. And two or three, primarily, around compliance and operationalRisk Management that were not acceptable and are currently under resubmission. The paragraph two submission has was resubmitted, i believe, in early february. Okay. So was there ever a sense of question about the urgency of management to respond to the regulatory orders . There was never any question about the importance of the work in the company. Was there concern by the board about the speed by which management was responding to these orders . There was a great deal of concern by the board about the speed with which not only the orders were being responded to but also the work to improve the Risk Management of the company and the the quality of that work. So how do incomplete and late submissions reflect on the safety and soundness of your institution . Of your former institution. They dont reflect well on them. Okay. So wells entered into a 480 million settlement with shareholders in 2018. Is that correct . Thats correct. Okay. Can you help us understand the basis for that settlement . Okay. Then let me help you with that. The bank and its executives made misrepresentations and omissions about the banks Business Model and sales practice. I have a lot of other questions here i wasnt able to get to. I have deep concern act just the responsiveness of the board. Its clear, from the documents that the majority and minority have, that we have the same findings of facts. There is severe deficiencies in Management Practices that were unique to wells fargo, and unique failures of this board of directors. Thats why were having this hearing. Even though you have both resigned. So with that, thank you, madam chair, for hosting this hearing, and i look forward to the questions. Thank you very much. The gentlewoman from new york, ms. Hav have valasquez. Yesterday, i questioned about the 2018 Consent Order and listening to your answers to the Ranking Member i i i just cant help but question the fact that you reviewed those plans, those that were materially deficient. But you concluded that they were acceptable. And then you send it. So was this on purpose . Excuse me . Im sorry . The fact that you sent acceptable but deficient materials, that plan that you sent to the fed, did you did you do that on purpose . No, maam. No. So paragraph two of the Consent Decree requires wells fargo to submit a plan than enhances the boards effectiveness in carrying out its oversight and governance of the bank. Ms. Duke, until sunday night, you were both and, mr. Quigley longtime Board Members of the bank. Dont you think submitting inadequate plans to the fed shows the boards focus on profit, not on addressing the core operational Risk Management problems of the bank . I think the board and the company have been focused very intensively on the operational Risk Management of the bank. The requirements of the board so then explain how the fed Meeting Minutes state that the fed staff concluded you were primarily concerned with lifting the asset cap. Even though you were unable to evaluate the degree of actual progress made by the bank on risk identification. Do you understand why this calls into question your commitment to the Consent Decrees requirement . My focus was on getting the work done to meet the requirements for operationalRisk Management. After the Federal Reserve rejected wells fargo april 2018 submission, ted craver, a director at wells fargo, sent you an email and questioned whether the plan missed the mark, and i quote. Because wells fargo perhaps, and i quote, rushed the job in its deal to clear this hurdle. Meaning the asset cap quickly. Given the comments in mr. Cravers email, can you understand why regulators, legislators, and even consumers, do not view the boards effort to comply with the Consent Decree to be genuine . Do you understand that . I do. And, mr. Quigley . Not different. Im sorry, i cannot hear you. I said i, also, find that disappointing. And what action have you taken . To make sure that paragraph two of the fed Consent Order required significant changes in Board Effectiveness and Committee Structures have been so let me ask you, sir, what specific actions can you point to that you have taken to show that you are, in fact, committed . We rewrote the charter for the Audit Committee, and we transferred Risk Management oversight that was causing some confusion between the Risk Committee and the Audit Committee. And we moved those paragraphs to the Audit Committee charter. And are the regulators satisfied . With respect to paragraph two, which was related to Board Effectiveness. The Federal Reserve has said that we are we have been responsive there. And weve changed the committee structure. Thank you. Ms. Duke and mr. Quigley, i think it is clear to me, to staff at the Federal Reserve, and even other executives within wells fargo, that the priority of the two of you and the overall focus of the board was on lifting the asset cap and exceeding the Consent Decree and not actually facing fixing the Risk Management problems at the bank or holding Senior Management accountable. That is why you are here. And i am and i i will dare to say that, probably, you will have to come back. If you do not change the culture in the in the institution. I yield back. The gentlewoman from missouri, ms. Wagner, is recognized for five minutes. Thank you, madam chairwoman. Ms. Duke, may i ask you to adjust your mic up a little bit . Were having a little difficulty hearing you. Ms. Duke and mr. Quigley, thank you for coming before the committee today to testify. Yesterday, we heard from wells fargos new ceo mr. Scharf about what steps he has taken in his first, approximately, six months to address the banks deficiencies. While i remain cautiously optimistic that mr. Scharf is the right person to move this business in the right direction, my questions today will be regarding your actions and in some cases the lack thereof to address the myriad of deepseated issues within wells fargo. The committees reports found that wells fargo routinely requests extensions to deadlines for submitting remediation and reform plans. Regulators, typically, grant those requests. But the banks plans remain insufficient. Even with the extra time. Ms. Duke or mr. Quigley, do you see differences between sloan and scharfs handling of the Consent Orders . Meaning, i guess, is there a greater sense of urgency now with respect to Regulatory Compliance . So, first of all, id like to say that the missed deadlines that the regulators talk about are completely unacceptable. And i and i dont view those as acceptable. On the resubmissions and the the the feedback on them, i i guess i think about because these are big, important pieces of work. I think about them similar to the First Capital exercises that the fed ran with c car, as well as the submission of plans under the the the livingwell provisions. And those plans have gone through several iterations. There have been a number of banks, including wells fargo, whose original plans were not acceptable and theyve had to improve them. Ms. Duke, was the board aware of the number of extensions that the bank requested in order to submit plans under the Consent Orders . The board was aware of any change in the the plans for the Consent Orders themselves. I believe some of the comments about extensions had to do, not just with the Consent Orders but, with other work that was with the agencies. Did that raise any kind of concerns for the board . It did. We spend, in our Board Meetings, they are now consumed with regulato regulatory issues. So we have now reporting not only to the board but to a number of committees as to the status of not just the Consent Orders but mras, mris, matters that are requiring attention that are also subject of regulatory so that was a red flag that the Consent Order program was not working. So let me give you this as an example. When charlie came to the bank and we were reviewing his the agenda for the first Board Meeting he was going to attend. And wed had long conversations with him about what we were doing. And i said, charlie, i apologize, there are no agenda items about the business. Theyre all about the regulatory situation. And he said i understand thats where we are. What about the fact that plans were repeatedly rejected, knowing that, why didnt the board take more aggressive action with respect to Holding Management accountable for the deficiencies of the Consent OrderCompliance Program . Well, there are a number of places where the people who were working on those submissions were changed. Someone else was working on them. In particular, the ones that had to do with Risk Management. So we got a new chief risk officer. We got a new chief compliance officer. We have been through four chief Operational Risk officers. So so it we were changing out the people. Looking for the people who could actually get the plans written in a in a complete fashion. Ms. Duke, the documents show you preferred the regulators to provide feedback directly to the heads of business lines. Help us understand why you did not want to hear from the regulators directly. So i i id very much like to address that that piece of the report. I have been in regulator industry for all of my career. Ive been in a regulatory agency. I have enormous respect for supervisors, examiners, and the work that they do. And ive been in Constant Contact with the regulators at the occ and at the Federal Reserve. The individual there, i we did meet with him on numerous occasions. I found him difficult. I found him not knowledgeable about what was going on in wells fargo. And i found that he sent he did send us letters on details that really belong somewhere else. But i should never have said why are you sending this to me . I know better than to do that and i apologize. Thank you for that admission. I yield back, madam chair. Thank you. The gentleman from california, mr. Sherman, who is also the chair for the subcommittee on investor protection, entrepreneurship, and capital markets, is now recognized for five minutes. The nation was shocked by the behavior of wells fargo. But whats equally shocking is that wells fargo seems uninterested in atoning for what it did. Was there any discussion at the board, ms. Duke, of being on the right side of history and instructing your lobbyists to lobby in favor of the overdraft protection act so that you could do something good for the consumers of the country . Having ripped them off by the tens of millions. Yes or no . Was there a discussion of supporting that act . In the Board Meeting, weve discussed overdraft programs. But you did not discuss what your lobbyists do in washington which affect not just your customers, you didnt even discuss the idea of being on the right side of history for all the consumers. Did you discuss whether you should assert the rights under the arbitration provisions . So that the arbitration provision kept somebody out of court for the phony account when they only signed it for the real account. Was that discussed in the board . We did not. Well, it sounds like the board is terribly disinterested in iatoning for the harm done t consumers, in general, in the country or the particular consumers that was consumers of the bank. But lets shift from the outrages of the past to of the crisis of the present. The stress test is designed to deal with what happens when you have a catastrophic event in the economy. Because we know that every year, theres some chance that such an event might occur. But once one event occurs, that does not diminish the likelihood of a second event occurring. So we have had one called the coronavirus. You could almost call it a two the decline in oil prices, which shook up a bit of the economy. That means we could very well have a third. Thats no more likely or less likely that Something Else that you did the stress test for would occur. Every dollar of dividends you pay or stock buybacks that you do makes the bank less able to deal with these catastrophes. You testified that America Needs a strong wells fargo in todays economy. You put together, at the board level, back in july, a stock e buyback and dividend program. Did that program anticipate what you would do if the country had one, call it one and a half, catastrophes that could affect the bank and economy and could very well have another one . I believe the design of the stress test actually does that. So within the stress test, there are not only changes in the economy and and economic variables. But also, plugged into it are assumptions about different risk events. So the the board you were still on the board when the coronavirus hit. You were there a couple days ago. You believe a strong wells fargo is needed for our economy. That you have a National Duty to provide a strong wells fargo. And after the coronavirus broke, did you have discussions of ending, or scaling back, your Stock Buyback Program . So i have not attended a Board Meeting since then. But i i, you know well, i would assume, this being a national i did speak with charlie about the actions the company was taking internally. How about the Stock Buyback Program . The weakening the bank, endangering the nation because you are too big to fail, in order to enrich the management by keeping the stock price up. No discussions of that since this epidemic arose . The design of the the stress tests on capital are to include the effects of unforeseen events. But once you have one unforeseen event, then its much more likely that you that youll end up with well, once you you plan for one or two or three. Once you have one, then the likelihood of four increases. Because you already have one. Right. And youre saying this coronavirus, you never thought about doing anything to diminish the payments to shareholders . So i i joined the Federal Reserve in august 2008. I am very much aware of the risk to banking. I know absolutely what it looks like when a run on a bank starts. I know, once it starts, how difficult it is. I know how important capital is to the so you know all these things. When we have a change in circumstance, youd think wed have a change in policy. Unless only the interest of management matter to the director to the directors. I yield back. The gentlemans time has expired. The gentleman from kentucky, mr. Barr is recognized for five minutes. Thank you, madam chairwoman. Ms. Duke and mr. Quigley, i admit i am somewhat amused by my democrat colleagues demand that you change the culture at wells fargo, otherwise you will have to come back to this committee. I am amused because you both have resigned from the board, as of last sunday, and you are no longer in a position to make any changes at the bank. I think its clear that the majority wants, only, to embarrass you and continue their persistent defamatory, antibank rhetoric. But since youre here, lets look to the past. Lets look to your service on the board, in the past. Which i think you can testify about. The republican report provides evidence that you and your fellow Board Members understood the regulators frustration with mr. Sloan. Yet, he remained in place. And let me just read to you, specifically, from that report. The report says that the evidence shows that sloan and his Team Provided incomplete and exceedingly optimistic information to congress, the public, and the board of directors. Wells fargo was no closer to complying with the regulators Consent Orders when tim sloan resigned in march 2019 than when his team took over in 2016. What troubles me the most is that its the report finds that between 2016 and 2019, the company routinely submitted incomplete plans to the regulators and missed deadlines. The submissions were frequently late or incomplete or both. So my question is why did mr. Sloan remain as ceo for so long during that course of of an incomplete Compliance Program . I would just want to emphasize that our assessment of mr. Sloan and his performance collected many, many data points from lots of places and it wasnt reliant, solely, on representations that he might make. I acknowledge that he led, as a Glass Half Full type of leader and he had a sense of optimism. I also had regular and many times during the past year, daily, communications with our regulators. And so i understood what their thinking was. And that helped me in my oversight of tim and his performance as our ceo, and the hrc committee, because they were concerned about wanting to drive accountability deeper into the culture. Revised our performancemanagement system so that in order to qualify for a bonus, you had to have made significant progress on regulatory matters. Ms. Duke . Well, let me move on. Let me ask you this. The republican report also shows, very clearly, that the regulators, under the Obama Administration were asleep at the switch. Federal regulators identified issues related to wells fargo sales practices as early as 2009. Unfortunately, it took an l. A. Times article to bring it to their attention years later, and even then, under director cordray and other regulators, they dragged their feet. In contrast, regulators under the Trump Administration have taken Decisive Action to correct the mistakes that the bank made, including implementing an unprecedented asset cap. Ms. Duke, do you believe that the actions by the Trump Administration financial regulators, including the imposition of the asset cap, were appropriate and fair given the gravity of the abuses and the need to send a message to management . I dont disagree with any of the actions of our regulators. I was encouraged, yesterday, to hear mr. Scharf speak about the urgency and the focus on the Consent Orders and dealing with the Consent Orders. You know, he testified yesterday that resolving the regulatory matters was his top priority. Do you feel that was the case under mr. Sloan . I feel like resolving the issues that led to the to the Consent Order, so resolving the weaknesses in operational and compliance Risk Management were the priority across the company. But i do applaud and appreciate mr. Scharf, charlies emphasis on getting this work done. Its one of the reasons that we were so happy to hire him. And i i think his his job is not going to be easy. And i think he needs the full support of the board and needs to be able to put his full attention on doing that. Well, my time is expiring but i was impressed by mr. Scharfs testimony as well. And more than just his testimony, the fact that he is making these changes and bringing in outside leadership. Theres been dramatic changes that have that have taken place there. And i wish him well. I yield back. The gentleman from new york, mr. Meeks, who is also the chair for the subcommittee on Consumer Protection and financial institutions, is recognized for five minutes. Thank you, madam chair. Let me ask both, ms. Duke and mr. Quigley. You have accountability being board chairs, right . There is accountability that you have . Ceos have accountability, correct . Yes. Okay. Mr. Mchenry said that the responsibility is care, loyalty, and good faith. So the first questions i would have is, is there any loyalty to your customers . Do you have, as Board Members, was there loyalty there . Or just to the stockholders or the shareholders and those individuals who were employed by the company . Whats that any loyalty goes to the customers . Use of the term duty of care, duty of loyalty, business judgment rule. All of that is grounded in delaware law and relates to the companys act and the relationship between the board and the shareholders, who elect us to represent them. But im asking you, as a member of the board i absolutely have a sense of loyalty and a sensitivity related to all stakeholders an enterprise okay. So heres my question. You know, up until when you first were asked to come here, you were on the board. So i want to talk about those things that took place while you were on the board. To make sure. So you were on the board, if im not mistaken, in september of 2016, thats correct . That is correct. Okay. So you were there when there was the fake account scandal. You were on the board, again, in 2016 when it was came out that it was improperly repossessing Service Member cars. You were on the board in december 16 when wells fargo fails in its livingwell test. You were on the board in march 2017 when there were more fake accounts. You were on the board, again, when wells fargo flunked Community Lending test. You were on the board in april 2017 when the whistleblower won a 5. 4 million decision and got his job back. You were on the board in august 2017 when the lawsuit over overcharging Small Business retailers. You were on the board in february 2018 when the Federal Reserve restricts your size. You were on the board in february 2018, also, when the sacramento sued the wells fargo over discrimination against black and latino borrowers. You were on the board on march 18th when the Wealth Management investigation emerges. You were on the board on april on april 2018 when there was a 1 billion settlement for mortgage locks and auto loan issues. So you were on the board on may 2018 altering Business Information without client knowledge. You were on the board on may 2018 when 480 million to settle securities fraud lawsuit. You were on the board in june 2018 when the s. E. C. Fined for lending investors astray. You were on the board in july 2018. You were on the board in july 2018 private bank Wealth Management issues and i could keep going on but im running out of time. Id probably run out of time before i talk about all the things that took place at wells fargo when you were on the board and chair of the board. And supposed to have some accountability. And doing all of this, my question, then, would be, you know, in december 2015, you know, when the feds came back, there were there were changes made to the composition. Were there changes made to the composition of the wells fargo board in response to the feds concerns back then . You dont have to answer that because i know. No, there was none. Except for one board member who retired. The Company Nominated its entire 2015 board for reelection in 2016 when all this was going on. Did wells fargo change its ceo . Did the board change . Ill answer for you. No. The chairman and ceo retired a year later in october 2016 in the wake of the sales fraud scandal. And only after he had offered unsatisfactory testimony before us. That might be why you resigned before you came to us. How about the chief risk officer . Did you find did wells fargo find a new chief risk officer in response to the feds concern about a weak risk culture at the company . Ill answer for you, again. No. Wells fargo thenchief risk officer Mike Laughlin continued to serve in that role through his retirement in mid2018 and claimed that the company should not donate to charity unless regulators acted more favorably towards wells fargo. In fact, in response to the feds concerns going back to 2015, wells fargos culture was a source of its Risk Management problems. And wells fargo made no changes. You made no changes. The gentleman from missouri is recognized for five minutes. Thank you, madam chair. I want to follow up a little bit on congressman barrs comments with regards to the republican report and information in there. And go back to where i think some of the problems started here. From the fact of not being able to recognize it. And it really concerns me from the standpoint that, you know, you go back already to 2009 when it shows that the regulators indicate there was a problem with some of your employee sales tactics. And then in 2013, Los Angeles Times ran a story on leading to ethical breaches at wells fargo. And then in 2014, in december, they broke the story that eventually broke everything out. And so my question is i think, mr. Quigley, you were on that board for all that most that period of time. And i think, ms. Duke, you came on shortly thereafter or around that time. What was your reaction to the news story at that point . We were appalled by the claims in that story. And what action did you take to find out other information . Or stop the practice . The Risk Committee asked the leader of the Community Bank to come to the committee and explain what had been asserted. Well, you know, mr. Stumpf was in here during that period of time and i asked him pointblank because he was firing about a thousand people a year over a fiveyear period and kept it up. I kept asking him why have you not changed the culture in your bank . Because you keep firing your people and saying were fixing it. No, youre not fixing it if you keep firing a thousand people every year. Thats not fixing it. So did that not send up some red flags for you when he kept firing people and nothing changed . The board was not aware of the pace of those terminations that youre referencing until the testimony that mr. Stump gave in september of 2016. And we read the materials that he was going to be providing to this committee. That was the first time that the magnitude of those sales practice violations became something to the board. And the board then acted decisively. And thats when we commenced the special investigation to do the rootcause analysis. And the incentive Compensation Plan in the Community Bank was then terminated, as was ts leadthe leader of that bank. Well, thats fine. But then according to our report here, it says the chief risk officer that joined the wells fargo in 2018 showed that the company lacked capacity to detect and fix problems compared to its competitors, which means you had a different Business Model, a different management style. Which is fine as long as it works but apparently it wasnt working. So was the board concerned . And according to our report here, it indicates their concerns were dismissed by that individual. They did not believe your executive officer mr. Sloan over the Risk Management committees report, apparently. Did it not strike you as kind of concerning that the Risk Committee says we need to be changing management style . And, yet, there was a conflict there . Did you not did you take sides . Apparently, you did on this. Im sorry that i sort of lost the the track as you were moving forward. But the you have a different management sty management style than most banks your size. And there is concern about that style with regards to those risk officers you hired in 2018 who, apparently, resigned in 2019. Did that not concern you at the time that there was, pointing out of this problem, and yet the executive officer seemed to say were okay. Our management style is fine. So apparently, you took sides in a situation and chose your executive officer over your Risk Management team and said we need to change how were doing business here. Can you give me a rationale in why you did that . Theres no question that we had to build an independent Risk Management structure as we were transitioning from and trying to make part of our what the old wells fargo was that federated model. When the Risk Management sat inside that line of business, we did not have effective Risk Management and we did not have the right issues being escalated. So i am pleased with the progress that was being made to build out that independent Risk Management group. And as the chairman of the compliance subcommittee, of the Risk Committee, i worked very closely with our chief compliance officer. And the significant, dramatic addition of resources and new capability that was coming to the bank to build that independent Risk Management function. That answer leaves me wanting more but my time is out. Thank you. Ill yield back. Thank you. The gentleman from georgia, mr. Scott, is recognized for five minutes. Thank you, chair lady. This has been an interesting and, yet, very disturbing hearing. And let me tell you why. Something is rotten in the cotton here. You all are not coming with the truth. On yesterday, we spoke with your chief executive officer. He had an excuse. Hes only been around for four weeks. You brought him in. But you two have been on this board throughout the entire germination of this shameful attack on the trust and confidence of the American People in your bank. Now, first of all, you all allowed, while you were on the board, you allowed the banks management to repeatedly submit material that was deficient in response to the Consent Orders from our regulators. You did that. You did not hold your management accountable. Dont you know, if i was sitting on the board of directors and im making 400,000, as you. 600,000, as you, of this money. I would be for what . You mean the Federal Reserve is coming in and laying the blame . They did, directly, at the feet of the board. Saying youre not Holding Management responsible. Who came up with this idea to make up accounts . Ma make them up. False accounts. Not one or two people. Millions. And you all sat on that board, and you said nothing. You did nothing. The answer has to be we have to find the answer from you today. Why did you allow this rabid conflict with the americans Peoples Trust in our Banking System to permeate while youre sitting there all these years . Whose idea was it . To place this on the backs of your employers of your employees . To make up these accounts. Somebody had to do it. Your chief executive from yesterday cant be held responsible for that. But you all did. Who came up with this idea to do this . Tell us right now. Tell us. Somebody had to. 7 youre sitting on the board. Theyre coming up with this. And you all did not hold your management responsible . What a sorry excuse for a board. That you said nothing about this. This is whats amazing about this appearance. Why . Who made that decision . To say let it go on. And why did you do it . And say nothing. Answer that for me. Why didnt you hold your management responsible . And why did you allow them to give these unacceptable reports to our banking regulators . Why . Whose idea was it . Come on. Tell us. Come closer. Tell us. Who made that decision to make up these accounts . Falsely. Who . Tell us. Therein lies the problem. And i hope and i pray that the people of this country see your stone silence when you wont even answer this question. When you wont even respond to the regulators. This is an unpardonable sin that wells fargo has embanked on the American People. Thank you. The gentleman from colorado, mr. Tipton, is recognized for five minutes. Thank you, madam chair. And appreciate both of you coming here as private citizens. Now, voluntarily, coming in to be able to address this committee. Have a number of critiques that i believe you probably understand many are valid. But i think a lot of our job needs to be looking forward, as well. In terms of as a legislative body, what rules and regulations ought to be applied. Where wregulators sleep at the switch in terms of actually enforcing with wells fargo some of the board compliance as well. And one of the issues we have had a lot of conversation with in our committee is the cra. March of 2017, wells fargo received a rating of needs to improve. In a press release that came out of the bank dated in march 2017, stated that the performance aspects of the cra exam included lending tests, the investment test, service test, wells fargo earned an outstanding or highly satisfactory rating. Ultimately, the needs to improve cre rating came according to the occ from the noncra performance factors. Ms. Duke, you were privy to the circumstances of this rating downgraded in your capacity on the board. Is that accurate . Yes, sir, it is. Under those tests, the Company Received higher scores. But as a result of the issues, not only sales practices but with some other issues, the occ elected to double downgrade. What was your reaction to that rating downgrade . So i i understand the reason for it. I, actually we did appeal that rating and the reason for that is this. I think the cras a really, really important law and a really important part of our Banking System. When i was a regulator, i actually did hearings around the country about changes to cra. And i think its important that the cra be used for the purposes that it was intended. And while i recognize and and and dont condone, at all, the behavior that led to the double downgrade, i question the use of that as a tool to to deal with the other problems of the company. So as a former regulator, youve had a lot of different capacities. Do you think its important with cra ratings, as an example, that theyre less subjective and more objective . In terms of some of the performance. So i no longer make the rules on cra. So i think my opinion is is is not well, as a former regulator, i was just curious. I think cra is really important and we need to find ways to measure it. But we also need to find ways to measure and know what the needs of communities are. And individual communities. Be they urban or rural and i think the banks have a real important responsibility to meet those needs. Especially, in low to moderate income areas. Well, wells big bank has a lot of small Community Banks that are in my district as well. In general, what options are available to a bank that fundamentally disagrees with a decision thats handed down from a regulator . There is an appeal process. But, you know, at least in our case, that appeal was denied. And and i would i would say that the issues that small banks because i was a Community Banker for almost all my career its much harder in a Community Bank to be able to find the investments that that do meet the requirements of the cra. And to have as complete a picture. So i think, you know, paying attention to the resources and the ability of the different institutions. Ive seen cases where Community Banks got together, pooled their funds, and did really good things in that i ever community, together, rather than individually. Well, youve dealt with small banks, big banks. You peel back to the very regulators to make a determination. No real chance to be able to turn it over. It occurs to me that there ought to be some independent measures to be able to have some of that actually be able to address. You both have been hit a lot here today in terms of board performance. You probably reflected back just a little bit in terms of how the boards ought to be able to react to management decisions and hiring. Do you have some thoughts that maybe when were looking at legislation, now, reflecting back where things could be done better . I think theres no question about the fundamental approach to corporate governance. And having the opportunity to be able to play that hand and do what you need to do in the best interest of your shareholders. And now, in the world as we think much more broadly than just shareholders, as charlie pointed out yesterday, thinking about all of those stakeholders. We absolutely were appalled by the sales practices abuses. And as soon as we were aware, we took immediate action. The witnesses have requested a brief break. So the committee will stand in recess for five minutes. Thank you