New York Gov. Andrew M. Cuomo put state-chartered banks andcredit unions on official notice to ensure employee incentivearrangements do not spawn another WellsFargo fraud fiasco.

Cuomo announced last week the New York State Department ofFinancial Services has issued new guidance directing allstate regulated financial institutions to ensure any employeeincentive arrangements do not encourage inappropriate corporatepractices.

“The inappropriate behavior we have seen at institutions likeWells Fargo are the same ones that led to the 2007 financial crisisand there must be zero tolerance for reckless policies that fostergreed and put New Yorkers' financial futures atrisk,” Gov. Cuomo said. “State-charteredbanks are now on notice of their obligations, and it is theirresponsibility to ensure their employees are acting in the bestinterests of their customers.”

This precautionary measure, as the governor called it, follows arecord $100 million fine and other penalties levied againstWells Fargo Bank by the federal government for programs thatencouraged employees to boost sales figures by engaging in thistype of behavior.

“We agree with the DFS that incentive-based compensationarrangements that encourage inappropriate corporate behavior shouldhave no place in our banking system,” RJ Tamburri, communicationsdirector for the New York State Credit Union Association, said.“But the bottom line is, credit unions don’t engage in the kinds ofrapacious banking practices that the DFS is trying to stamp outwith this guidance.”

The New York association is also concerned that credit unionsare once again being regulated in the same manner as institutionsthat actually engage in these types of practices.

“Every time a mandate like this is imposed on New York creditunions, it makes it that much more difficult to maintain a viablestate charter,” Tamburri said.

Specifically, all regulated banking institutions have beenadvised that no incentive compensation may be tied to employeeperformance indicators without effective risk management, oversightand control.

These directives will apply to New York's 17 state-charteredcredit unions. There are more than 350 federal credit unions in theEmpire State. The new directives also apply to 121 state-charteredcommercial banks, savings banks, bank holding companies, 88 foreignbranches, 14 foreign agencies and 35 representative offices.

Other governors have taken different steps to address theWells Fargo fraud.

On Friday, for example, Ohio Gov. John Kasich said he is barringWells Fargo from participating in future state debt offerings andfinancial services contracts initiated by state agencies under hisauthority. He also said he will seek to exclude Wells Fargo fromparticipating in debt offerings initiated by the Ohio PublicFacilities Commission.

Kasich’s announcement follows similar decisions by leaders inCalifornia, Illinois, Chicago and Seattle, who announced earlierthis month they had banned the San Francisco-based bank from doingbusiness with their state and city governments.