Fed eases Wells Fargo's asset cap to allow for more business lending
WASHINGTON — The Federal Reserve is temporarily altering the growth restriction it placed on Wells Fargo in 2018 so that the bank can make additional loans to small businesses through the Small Business Administration’s Paycheck Protection Program and an upcoming credit facility aimed at midsize companies.
Wells Fargo has been barred from growing its assets above $1.95 trillion for more than two years, but representatives have pushed the Fed to suspend the cap, at least on temporarily, to give it more flexibility to lend during the coronavirus crisis.
The cap doesn’t restrict Wells Fargo from any particular activity, but does limit the size of its balance sheet. The Fed said in a release Wednesday that it would not count the bank’s lending activities through the SBA program and the forthcoming Main Street Lending Program against the $1.95 trillion cap for the duration of the two credit facilities.
The modification does not otherwise change the original 2018 enforcement action the Fed took against Wells Fargo after unearthing several scandals, including that bank employees had opened millions of unauthorized customer accounts.
“The Board continues to hold the company accountable for successfully addressing the widespread breakdowns that resulted in harm to consumers identified as part of that action and for completing the requirements of the agreement,” the Fed said in the release.
All profits that Wells Fargo makes from additional support to the SBA program and the Main Street Lending Program will go to either the Treasury Department or a nonprofit that helps small businesses, the Fed said. The vote to modify the bank’s growth restriction was unanimous.
The Fed imposed the cap following a slew of misdeeds at the bank, the most notable being a scheme in which employees opened bank and credit card accounts without custmers' knowledge in order to meet sales targets.
Before the current crisis, Fed Chairman Jerome Powell made certain promises about what would have to happen before the asset cap could be lifted.
Powell pledged, for instance, that the board of governors would hold a vote on whether to lift the asset cap. He also stated that the board did not intend to remove the cap until Wells Fargo implemented sufficient remedies.