On Tuesday, the Federal Reserve decided to remove the nearly $2 trillion asset caps placed on Wells Fargo following a scandal in 2016, where millions of fraudulent accounts and other consumer abuses were exposed.
This move marks the closure of a lengthy period of regulatory challenges for the bank and is seen as a significant win for CEO Charlie Scharf.
Scharf came on board in 2019 with the task of rectifying the issues that arose after the company incurred multi-billion dollar fines.
The Fed stated that lifting the $1.9 trillion asset cap, initially set in 2018, signifies the bank’s noteworthy advancements in rectifying its shortcomings.
This decision also represents one of the last actions by Janet Yellen during her time as chairman of the Federal Reserve before continuing her role as Treasury Secretary under the Biden administration.
Following the announcement, Wells Fargo’s stock surged over 2% in after-hours trading, closing at $75.65, a noteworthy rise from $59.34 a year prior.
The scandal surrounding fake accounts had already led to the resignation of two top executives. John Stumpf was ousted in 2016 when the news broke, and his successor, Tim Sloan, stepped down over a year later after the asset cap was implemented.
Despite the asset cap’s removal, it’s important to note that some aspects of Yellen’s enforcement order are still in place, meaning banks will continue to face heightened scrutiny from regulators.
Michael Burr, who was a vice-chair of banking supervision earlier this year, commented that lifting the asset cap is a positive step towards meeting the necessary standards guided by effective leadership, solid board oversight, and maintaining corporate accountability.
“All three need to continue to be considered in a sustainable manner,” he added.
