Wells Fargo & Co. Chief Executive Officer John Stumpf saidmanaging low interest rates may be the most pressing challenge forbankers and that his company had prematurely kept funds idle togird for increases.

“One of the biggest risks today in our industry is not creditrisk; it's interest-rate risk,” Stumpf said today at an investorconference in New York sponsored by the Sanford C. Bernstein &Co. research firm.

Investors have pressed bankers on how their firms can increaselending profit margins in a low-rate environment and drive up stockprices. Some banks have been wary of taking on business with rateshovering near record lows on concern loans will become lessvaluable when more-normal conditions return. Wells Fargo, based inSan Francisco, is the largest U.S. home lender and ranks fourth byassets.

“We've probably been wrong the last couple years; we've had alot of this stuff on the sidelines saying rates will turn aroundsometime,” Stumpf said. “Well, sometime hasn't come yet.”

That may finally be changing, Stumpf said, citing a recent risein rates on concern that the Federal Reserve will slow debtpurchases as the economy gains speed. Corporate notes denominatedin dollars declined 0.7 percent on May 28, erasing gains for theyear as 10-year U.S. Treasuries posted the biggest one-day declinesince October 2011, Bank of America Merrill Lynch index datashow.

Wider Margins

Cutting credit losses and boosting the firm's vast pool ofinexpensive deposits will assist Wells Fargo's profit margins,Stumpf said. He wants to increase loans from $800 billion to about$1 trillion, closer to matching its deposits, he said.

Stumpf said he doesn't consider Wells Fargo too big to fail andthat more restrictions aren't needed. Lawmakers who argue that theDodd-Frank Act hasn't safeguarded taxpayers against future bailoutshave proposed higher capital requirements for the biggestbanks.

“I understand why policymakers and regulators and legislatorsdon't want to be put in the situation they were in 2008,” Stumpfsaid, adding that new regulations and current capital rules shouldbe given “a chance to work.”

While his firm won't buy other deposit-taking banks, mergersamong smaller lenders may increase, Stumpf said.

“I would've thought you would've seen more activity by now,” theCEO said. “It would not surprise me if you saw that pick up abit.”

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