Wells Fargo Bank, established for more than 160 years, started their business in acquiring gold from old prospectors and resale them on the market. It had expanded its business through continuous acquisitions and mergers over the past 20 years (Wells Fargo, 2019).

During the financial crisis, famous financial giants Lehman Brothers and Bear Stearns failed, the US banking industry was severely hurt. However, at that time Wells Fargo went up. Thanks to its well-organized business structure, Wells Fargo was able to survive in the financial crisis. It is known that before the financial crisis, Lehman and Bear Stearns heavily involved in the financial derivatives business, and financial institutions such as Citi and Bank of America went further on the track of investment banking business.

However, Wells Fargo maintained the main retail banking Positions, and vigorously extend their business in banking and personal finance. In particular, the contribution of retail business to Wells Fargo’s net income is more than 60%, and it is this sector that has not been affected by the financial turmoil, and Wells Fargo has become more robust (Jackson, 1972).

However, the breakout of the fraud scandal drags Wells Fargo from its superior position.  The Wells Fargo account fraud scandal raised great concern all over the states and became a controversial topic. The scandal first happened in 2016; Wells Fargo was published that some of their staff opened unexpected credit or debit cards or lines of credit for their clients.

In September 2016, Wells Fargo was revealed to have opened around 2 million retail deposits and credit card accounts, with potential related losses of up to $ 3.3 billion (Josh Shapiro Attorney General, 2018). Furthermore, Wells Fargo was also blamed for replying to the owners of the cars improperly and did not limit interest rates to 6% which is compulsory regulation by the law. Till now, the bank has already paid $20 million in fines to the OCC and made restitution of over $10 million to wronged service members (Levine, 2018).

In March 2017, a customer found there are some other unnecessary insurance fees covered in his bill, more fake accounts emerged which is around 3.5 million, one-third higher than the previously estimated amount of accounts. Wells Fargo said this number was unverified and hypothetical but eventually said there might be up to 3.5 million accounts. (Josh, 2018)

Reasons behind the scandal

“The 2016 National Report on occupational Fraud and Abuse” issued by the American Association of Certified Fraud Examiners (ACFE) reveals it is of high possibility for fraud to happen when the staff is faced with three elements which are stress, opportunity, and behavioral rationalization mechanisms (ACFE, 2019). ACFE reveals that in organizations, there will be around 5-10% of employees will never misbehave, 5-10% of employees are very determined to achieve their personal aims, and most of the left employees whose personal ethics are easily influenced by the surrounding environment would fall into the control of the three elements mentioned above (ACFE, 2019).

Based on the report of ACFE, it is easier to define the reasons behind Wells Fargo’s fraud. According to the statements of more than 5,300 fired Wells Fargo’s employees, the direct cause of the scam is that Wells Fargo connected employees’ salaries to their sales performance (Tayan, 2019).

Faced with enormous pressure coming from sales figures, employees have no choice but to take risks of fraud at the expense of sacrificing customers’ benefits. It is seen that those employees who have chosen deceit fell into the control of the “three elements” which brings attention to the deeper reasons that lead to their behavior- the cross-selling model of Wells Fargo.

Cross-selling model which promotes the development and success of Wells Fargo was considered as the turning point of the company; it is regarded as one of the most significant elements that make Wells Fargo comes to its peak time. According to reports from Wells Fargo, the amounts of products purchased by customers has a strong relationship with the profits that customers contribute to the company.

If customers purchased approximately six to nine products from the company, the benefits they make for the company jumped from $ 147 to $ 391 (Wells Fargo, 2019). Based on the high profits, the company hopes every customer could own six to eight products on average. It is shown that most banks in the United States have an average of three or four products per customer, but there are Wells Fargo has six per customer, and after more than 20 years of implementation, Wells Fargo’s cross-selling number has reached 6.29 (Tayan, 2019).

From the mad bets on financial derivatives before the financial crisis to today Wells Fargo breaks the moral bottom line, behind the quick-for-profit behavior is that people are eagerly chasing after the profits ignoring the regulations and moral behavior, while the traditional culture of compliance and soundness is left behind. However, the baking industry is easily affected by externalities. As such, rebuilding a culture of compliance should be the top priority of the task management of financial regulatory authorities and banking institutions in various countries.

To conclude, the reasons that lead to Wells Fargo’s fraud could be divided into two parts. On the one hand is because the employees lack a sense of self-restraint and on the other hand, is because of the drawbacks of the cross-selling pattern.

How to prevent scandals in the future

From my part of the view, for the banking industry, a stable and reliable process should be put with great emphasis because robustness lays a solid foundation for the whole banking system. In terms of “liquidity”, “security”, and “profitability”, which were important things for a bank, making profits should not be the only aim for the bank, it should come after high cash flow turn over and promise of protecting the customers’ privacy and account safety.

Then, for the risk evaluation system, the bank should not just limit this system in motivating the employees to make profits for the company, but also notice the potential risks covered by the cross-selling model. The bank could provide another deferred performance assessment to reduce the high pressure brought to the staff (Mann, 2019). It is necessary for regulators to set clear goals and path guidance, and to give strict punishment if someone is violating regulations, dishonesty, or other wrong behavior.

It should also be considered that Wells Fargo’s cross-selling pattern has always been emphasized too much by the banking industry. Nowadays, many banks have also closely connected employees’ salaries with their sales performance like how many insurance products they sold, how many wealth management products they issued. In order to gain profits from handling fees, some commercial bank employees introduce and encourage their customers to purchase high-risk wealth management products issued by trust companies or insurance agencies (Anderson, 1981).

Now it seems that while strengthening the guidance and supervision of the bank’s incentive mechanism, it is even more important to prompt banks to correct their tasting thinking about cross-selling patterns, just as the model itself is not a bad thing. Still, it must be fully considered when introduced into the practice. And based on adhering to the “customer-centric” concept of Wells Fargo, the emphasis is on promoting the use of channels through the building and improving customer services.

Entrepreneur’s business philosophy and conduct often affect or even determine the value direction of the enterprise. On the one hand, bank managers need to develop strategic determination, which needs to resist various temptations, withstand performance pressures, and even sacrifice short-term benefits, so as not to absorb the short-lived prosperity and not to suffer from temporary difficulties. On the other hand, it is necessary to closely follow the spiritual core of business innovation, and adhere to the principle of effective innovation, to comply with policies of the bank system rather than seek arbitrage, support entities, or idle funds (Ochs, 2016).

In conclusion, there are three aspects that need to be paid attention to prevent this scandal happen again. The first one is that the bank should improve the internal and external risk evaluation system for better regulating the staff to do the fraud. When there comes punishment for fraud, the staff will not take risks of doing illegal things. Then, the drawbacks of the cross-selling pattern cannot be neglected.

The cross-selling pattern does have a positive effect on Wells Fargo. However, the pattern also puts great pressure on the employees. This pattern should be changed into a more thoughtful model for better development. Finally, the leader’s philosophy is also very important to the company, the CEO of Wells Fargo is obviously not a suitable person for that occupation; the choice of new CEO should be carefully considered.


Anderson, H. P. (1981). The Corporate History Department: The Wells Fargo Model. The Public Historian, 3(3), 25-29.

Association of Certified Fraud Examiners. (2019). Retrieved from https://www.acfe.com/.

Jackson, W. T. (1972). Wells Fargo: Symbol of the Wild West? The Western Historical Quarterly, 3(2), 179-196.

Josh Shapiro Attorney General. (2018). Attorney General Shapiro Announces $575 Million 50-State Settlement with Wells Fargo Bank for Opening Unauthorized Accounts and Charging Consumers for Unnecessary Auto Insurance, Mortgage Fees. Retrieved from https://www.attorneygeneral.gov/taking-action/press-releases/attorney-general-shapiro-announces-575-million-50-state-settlement-with-wells-fargo-bank-for-opening-unauthorized-accounts-and-charging-consumers-for-unnecessary-auto-insurance-mortgage-fees/.

Levine, M. (2018, October 23). Fake Accounts Still Haunt Wells Fargo. Retrieved from https://www.bloomberg.com/opinion/articles/2018-10-23/fake-accounts-still-haunt-wells-fargo.

Mann, E. W. (2019, March 12). Wells Fargo scandals: The complete list. Retrieved from https://finance.yahoo.com/news/wells-fargo-scandals-the-complete-timeline-141213414.html.

Ochs, S. M. (2016). The leadership blind spots at Wells Fargo. Harvard Business Review, 10.

Tayan, B. (2019). The Wells Fargo cross-selling scandal. Rock Centre for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-62 Version, 2, 17-1.

Wells Fargo. (2019). Retrieved from https://www.wellsfargo.com/.