Wells Fargo’s Asset Cap Lifted by Federal Reserve
In early 2018, the Federal Reserve imposed a significant penalty on Wells Fargo due to a long history of illegal activities. This included an asset cap that restricted the bank’s growth.
However, on Tuesday, the Fed announced that it is lifting those restrictions. Regulators indicated that Wells Fargo has made enough improvements in internal governance and risk management to operate freely again.
Fed Governor Michael S. Barr commented that the termination of the asset cap reflects the bank’s “focused administrative leadership, strong board oversight, and strict oversight.” He emphasized that these improvements “must continue to ensure a sustainable approach.”
Wells Fargo, based in San Francisco, welcomed the lifting of sanctions that had been in place for over seven years. CEO Charles W. Scharf described this development as a “pivotal milestone” for the company’s transformation.
“We are a much stronger company today, thanks to the work we’ve done,” he stated.
The bank announced that nearly all of its 215,000 full-time employees will receive $2,000 in awards. This will mainly come in the form of a restricted equity grant, providing employees an opportunity to “have a portion of Wells Fargo and benefit from future success.”
Scharf took the helm at Wells Fargo in 2019 following a series of scandals that had led to the resignation of two previous CEOs. In 2016, it came to light that bank employees had been opening accounts for clients without their consent to meet aggressive sales targets.
This revelation was just the beginning, as further mistakes came to light, including unwarranted home seizures and automatic foreclosures. The bank ended up facing billions in fines and compensation to affected customers, while one of the top executives faced criminal charges but avoided jail time through a plea deal.
The asset cap significantly hindered Wells Fargo’s ability to compete with its rivals. During this period of restrictions, it dropped from being the third-largest bank in the U.S. to the fourth, with assets totaling around $1.9 billion.
Now, the bank will have the capacity to expand its lending capabilities, grow its deposit base, and perhaps acquire other financial institutions. Following the Fed’s announcement, Wells Fargo’s stock price rose about 3.7% in after-hours trading.
Wells Fargo was the first bank to receive such a stringent penalty from federal regulators, but it is no longer alone in facing similar restrictions. Last year, the Office of the Comptroller of the Currency placed an asset cap on TD Bank for violating the Anti-Money Laundering Act.
Analyst Ian Katz of Capital Alpha Partners remarked that “no one thought it would last this long.” The removal of the asset cap signals both the bank’s improvements and a more accommodating stance from the Fed.
