The Federal Reserve Board of Governors will hold a vote on whether to lift the growth cap that it imposed on Wells Fargo earlier this year, according to Jerome Powell, the central bank's chairman.

The move has been encouraged by Sen. Elizabeth Warren, D-Mass., and Powell had earlier said he supported it.

In a May 10 letter to Warren, Powell noted that the enforcement action taken against Wells in February imposed a growth cap on the firm and required management to submit a risk management and operational risk plan to the San Francisco Fed and the Fed Board’s director of supervision for review. Initially, Powell said, the enforcement action required only staff-level concurrence with the bank’s plan to change its processes and verification that those changes had been made for the cap to be lifted.

Federal Reserve Board Chair Jerome Powell
Before the Fed board removes Wells Fargo's growth cap, the bank "must first make significant progress in remedying" its oversight, compliance and risk-management functions, Powell said. Bloomberg News

“After further consideration, the decision about terminating the asset growth restriction will be made by a vote of the Board of Governors,” Powell said in the letter. “As the terms of the order make clear, the firm must first make significant progress in remedying its oversight and compliance and operational risk management deficiencies before relief from the asset growth restriction would be forthcoming.”

Warren trumpeted the decision in a statement, saying that she was "glad" the board would vote on whether to lift Wells' growth cap and that the Fed should "strictly enforce its order and show Wells Fargo that it means business."

The February enforcement action came in response to concerns about what former Fed Chair Janet Yellen called the bank's “pervasive and persistent misconduct" related to its cross-selling scandal along with its home and auto insurance misdeeds.

Wells is forbidden from growing beyond its December 2017 asset level of roughly $2 trillion. The bank's CEO Tim Sloan said Thursday that the company anticipated that it would be held under that threshold until “the first part of 2019” — somewhat longer than was initially expected.

The board’s vote on releasing Wells from its enforcement action is not an entirely symbolic move. There are only three members of the Federal Reserve Board of Governors at the moment, and one of them — Vice Chairman for Supervision Randal Quarles — has recused himself from participating in matters related to Wells Fargo because of familial connections with the company. With Quarles recused, Wells could not be released from its enforcement action except through a unanimous decision between Powell and Fed Gov. Lael Brainard.

That dynamic changes, of course, if additional members are added to the board. President Trump has nominated three people to fill vacant seats on the board: Carnegie Mellon economist Marvin Goodfriend, Columbia University economist Richard Clarida and Kansas Banking Commissioner Michelle “Miki” Bowman.

Goodfriend was nominated for a seat in November, but faced a very skeptical panel of Democrats during his confirmation hearing and vocal opposition from Sen. Rand Paul, R-Ky., making his nomination somewhat uncertain. Clarida and Bowman, meanwhile, will testify before the Senate Banking Committee next week.

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