The Federal Reserve is about to launch what it says will be the biggest financial experiment in history.
But in the process, the nation’s biggest bank, Wells Fargo, is going to be on the hook for tens of billions of dollars in penalties.
It is all part of the ongoing fallout from the massive housing crisis that has left tens of millions of Americans underwater.
“The Fed will use its authority to conduct a full review of the banking system to identify and eliminate any risks that could threaten the financial stability of the United States,” the Federal Open Market Committee said in a statement Friday.
“It is a necessary step to ensure that we are prepared for the effects of a potential financial crisis.
The Federal Open Bank will be a critical tool in the Fed’s efforts to support the financial system.”
While the Fed says the move is “a necessary step in the right direction,” it will be subject to the same kind of review as every other step the Fed takes.
The Fed also said the review will take a “full and objective” look at the way the financial industry works.
Wells Fargo, which has about $40 billion in assets under management, announced the move to the Federal Deposit Insurance Corp. (FDIC) in January, in the wake of a scandal that resulted in the bank’s former CEO, John Stumpf, pleading guilty to a crime that included making $1.3 million in illegal profits.
The bank has been under investigation since May over the scandal and Stumpff has since been forced out.
As part of its review, the Fed will look at whether Wells Fargo’s lending practices are similar to those of banks such as Bank of America, which was accused of violating the FDIC’s anti-money laundering laws.
In April, the Federal Communications Commission announced it was creating a “Consumer Financial Protection Bureau,” which would regulate consumer credit products and services.
Wells Fargo and other banks have been the subject of numerous lawsuits and investigations related to the mortgage crisis, with more than $50 billion of claims against the company pending.
It’s the latest in a string of legal woes for Wells Fargo.
Last month, a federal judge ordered the bank to pay $185 million in a class-action lawsuit.
Wells filed for bankruptcy protection in April.
A year ago, Wells filed a $12 billion lawsuit against the Trump administration over its handling of the mortgage debacle.
The bank says it’s being targeted because it refused to plead guilty to the crimes.
At the time, Wells said it “has not been able to prove that there is an intentional or reckless disregard for the safety and soundness of the bank.”