Making public comments about regulators is, in Wells Fargo's case, a little like stirring up a hornet's nest. Image source: iStock/Thinkstock.

The first law of holes states that "if you find yourself in a hole, stop digging." The executives at Wells Fargo (WFC -1.46%) should keep this law in mind the next time they decide to even subtly criticize bank regulators.

An ill-advised move

At an industry conference last week, Wells Fargo's new CEO, Tim Sloan, was asked to share "one or two things that he thinks make sense to change from a regulatory standpoint." The context for the question was the incoming presidential administration's promise to roll back the 2010 Dodd-Frank Act.

The same question was put to Sloan's peers at Bank of America and JPMorgan Chase, both of whom answered it diplomatically, in no way making it seem as if they were criticizing regulators. Sloan took a different route. While JPMorgan's Jamie Dimon declined to provide a list of desired changes, Sloan's response was that "there'd probably be a few more than" the one or two changes asked for.

Sloan said he's "still scratching his head" on new rules aimed to bolster large banks' capital and leverage ratios. He pointed out that the new FHA mortgage restrictions have minimized the role of commercial banks in that market. He implied that regulators have too much subjective discretion in the annual stress tests. He suggested that the new capital and liquidity rules have "gone a bit far." And he finished off by saying that he could "go on for about another hour" on the topic but didn't want to because of the limited time.

Consider the source

Everything Sloan said is true. The regulators have taken things too far. They were upbraided for allowing the financial crisis to occur, and now they're taking their vengeance out on the industry.

In exacting their revenge, the regulators are unduly dampening economic growth. Banks don't need to hold as much capital and liquidity as they do right now. This is aggravated by the fact that they have to maintain higher capital ratios through the stress tests, which try to forecast how banks will perform in a hypothetical downturn that's worse than the financial crisis.

On top of this, the fanatical way in which the Consumer Financial Protection Bureau pursues its mission to protect consumers simply takes things too far. Talk to those in the industry, at small banks in particular, and they'll tell you that the CFPB is waging nothing less than a holy war on banks irrespective of the impact it has on innovation and access to credit.

These are all problems that need to be addressed. And, at least by the sounds of it, they will be after Trump's team gets to work next year. But I can say that without fear of reprisal from the regulators. They don't have a beef with me. I doubt they even know who I am.

Negotiating from a position of strength

Sloan isn't in the same boat. Not only do the regulators know who he is, he and the rest of Wells Fargo are already under the regulatory microscope thanks to the bank's fake-account scandal, in which thousands of its employees opened millions of unauthorized accounts for customers without the approval to do so.

Wells Fargo paid a $185 million fine for the practice in September. Two months later, the Office of the Comptroller of the Currency began requiring Wells Fargo to get regulatory approval for changes to its board of directors or senior executive officers. All along this time, moreover, the bank was working to remedy deficiencies in its so-called living will that the Fed rejected back in April.

The point is, Wells Fargo isn't operating from a position of strength vis-a-vis regulators. And in case the bank needed a reminder, it got one on Tuesday, a week after Sloan's comments, when the Fed said that Wells Fargo was the only one of five banks that failed to satisfy regulators with its resubmitted living will.

This isn't to say the regulators failed Wells Fargo's resubmitted living will as punishment for Sloan's comments. I'm sure they had plenty of other reasons to do so. But Sloan's comments certainly couldn't have helped.

Sloan owes his shareholders a fiduciary duty to act in their best interest. Right now, that includes keeping his criticism of regulators to himself. Their time will come, and probably sooner rather than later, but it's not in Wells Fargo's power or interest to try to hasten its arrival.