The Wall Street Journal recently reported that the management component of the CAMELS rating for Wells Fargo Bank, NA had been downgraded to a “3” during 2017. A “3” rating of management means that the capabilities of management or the board of directors “may be insufficient for the type, size or condition of the institution.” At best, a “3” rating of management equates to a C minus on a report card.
The “3” rating of management made business headlines, and fueled speculation that another enforcement action against Wells Fargo may be forthcoming. Less attention has been focused on who leaked the information and why. A bank’s CAMELS ratings are confidential, exempted from Freedom of Information Act disclosures. The boilerplate of every report of examination warns that the unauthorized disclosure of a report of examination is a criminal offense.
No bank wants to brag that its management has been rated a “3.” This would be especially true of the bank employees who would have knowledge of the rating. For only the highest ranking bank officers and the members of the board of directors ordinarily have knowledge of the CAMELS ratings. The higher echelon of a bank simply has no interest in telling the world that the federal bank regulators think they may lack the ability to properly manage the bank.
More likely, the leak of the rating started with a regulator. But why? We can only guess. One possibility is that the leak was meant to build pressure on the Office of the Comptroller of the Currency to take further enforcement action against Wells Fargo. Perhaps a disgruntled examiner felt the OCC was being too lenient on Wells, as opposed to a community bank where a “3” management rating most frequently leads to an enforcement action. By leaking the information, that examiner might have hoped the agency would be forced to take action, or at the very least have its double standard for large bank supervision exposed. But why would the examiner stop with leaking only the management rating? Perhaps OCC provided information to Congress about its oversight of Wells Fargo, noting how the past lapses at Wells resulted in a downgrading of management. This could account for the leak solely relating to the management component. Persons in Congress might have an interest in Wells being poorly perceived in the marketplace.
Regardless of who leaked the rating or why, we are unlikely to learn answers. Except when money is involved, illegal stock trading for example, the leaking of confidential report of examination material is seldom prosecuted. The absence of a paper trail and the corresponding questions of proof are probably the main reasons. Still, anyone who disregards the report of examination boilerplate about the criminality of disclosing report of examination material does so at his peril.