A spectacular scam in which employees of Wells Fargo (WFC - Get Report) opened unauthorized customer accounts in order to earn bigger bonuses may shake the wheels off not only the bank's legendary stagecoach, but the entire industry.
The fate of the 160-year-old company itself is of only secondary interest to me, however. Many other businesses have weathered comparable scandals and bounced back relatively painlessly.
The real problem is that the malfeasance at the bank may lead to the entire industry being relegated further into a minor economic role.
Wells Fargo has already been fined $185 million earlier this week for the scam, in which employees created more than 2 million credit card and deposit accounts in the names of customers who weren't told about them. Some were funded from customers' existing accounts, which were hit with insufficient funds because of the unauthorized deductions, and others racked up fees for inactivity.
The bank fired 5,300 employees implicated in the scam, which seems to have had no saving graces. It didn't involve fudging income to get people into houses that customers wanted, and it wasn't an anomaly -- 2 million accounts is hard to wash away with corporate Windex.
Never mind that such behavior is at odds with the noble origins of the bank -- safely transferring money and valuables for customers via stagecoach in the Wild West-era.
Never mind that this has huge corporate governance implications for Wells Fargo executives: Who knew what and when?
Never mind incentive compensation; it often plays a role in such malfeasance.
Not to say these aren't important, but my concern is with the wider financial services sector and the U.S. economy.
The industry, including companies whose stocks are held in the Financial Select Sector SPDR exchange-traded fund (XLF - Get Report) , is already heavily regulated, partly in an attempt to curb activities blamed for the 2008 financial crisis.
This latest incident will only compound the fallout from other scandals and complaints, in effect making it "a scam too far." New regulations might compound the schizophrenic oversight from the Federal Reserve, which wants banks to lend more money but doesn't want them to take undue risk, as well as the scrutiny of the relatively young Consumer Financial Protection Bureau, which fined Wells Fargo in the account scam.
Before this week's news, it was possible to justify reducing regulation on the grounds that most incidents of bad behavior are the fault of a few willful bad apples.
Now, not so much. Dismissing 5,300 staffers is just too big to ignore.
It doesn't matter that they represent only about 1% of total employees at the bank. It's still a large number that will resonate with anyone who has ever had a bad episode with a customer service rep at any bank, anywhere, at any time.
The actions at Wells Fargo were just plain bad, and Congress will no doubt feel pressured to do something, or at the very least, to talk about doing something. Like it or not, that will probably lead to more government rules.
And that means it will be harder and harder for banks to do what they should be doing: Making loans.
I suspect that under increased government regulation that bank loans will form an ever smaller part of the economic drivers of the economy. Instead, the action will move to hedge funds, angel investors, and the unregulated lending industry.