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Illinois State Treasurer Michael Frerichs joined CNBC's "Closing Bell" on Monday to discuss the state's decision to suspend billions of dollars of investment activity with Wells Fargo and what it could mean for taxpayers.
Frerichs explained that, in the past, the state used a "best bid" system to determine the institutions for state investments. Based on the $30 billion of annual investment activity the state would do with Wells Fargo, he estimated the bank would earn millions of dollars in fees from those transactions.
A Wells Fargo spokesman told CNBC on Tuesday the actual amount of lost revenue for the bank is only about $50,000 per year. He said most of the state's investments are short-term with low rates.
When asked whether the state would be willing to pay more to other financial institutions in the event that Wells Fargo continued to be the "best bidder," Frerichs was unclear as to what the cost would be to taxpayers.
"There are lots of other financial institutions that we work with," he said. "About 25 different ones that bid...the market sets the price that we pay."
Wells Fargo has dealt with the repercussions of opening millions of fake accounts as employees tried to meet sales goals. The bank has ended sales goals in its retail banking division and settled with regulators for about $190 million. The decision comes on the heels of California's decision to issue 12-month sanctions against Wells Fargo last week, and Frerichs said he expects other public entities to follow suit.
"I'm sure other states, other cities will be looking at doing something like this," he said. "We're following California on stopping investment activity, but the state treasurer in California isn't in charge of unclaimed property."
The next step, he said, would be to "go in" and see if the bank was in compliance with the state's unclaimed property statutes.
California State Treasurer John Chiang told CNBC he supports Illinois' decision, saying Wells Fargo is just the latest example of abuse coming from financial institutions.
"Until Congress and bank regulators pass sensible reforms to curtail the further fleecing of consumers, bank customers – like the states of California and Illinois – will have to fill the leadership void," he said. "The best way to do so is to hit Wells Fargo where it hurts – in the pocketbook."