The Federal Reserve announced that Wells Fargo & Co. is no longer subject to the cap on its assets that was imposed in an enforcement action against the bank seven years ago, Advisor Hub reports.
The Fed restricted the growth of Wells Fargo in 2018 after widespread consumer abuses and compliance breakdowns, including a scandal in which employees opened millions of unauthorized accounts for customers. Wells was restricted from growing any larger than its total asset size until it made sufficient improvements.
The bank was required to improve its governance and risk management program and complete a third-party review of these improvements. In an announcement last week, the Fed said it determined that Wells Fargo has met all the conditions required by the 2018 enforcement action for removal of the growth restriction.
“The Federal Reserve has completed its review of the bank’s remediation efforts and required third-party assessments, and has completed its own assessment of Wells Fargo’s corporate governance and firmwide risk management programs,” the statement said. “The removal of the growth restriction reflects the substantial progress the bank has made in addressing its deficiencies and that the bank has fulfilled the conditions required for removal of the growth restriction. The other provisions in the 2018 enforcement action will remain in place until the bank satisfies the requirements for their termination.”
The decision was welcomed by Wells Fargo CEO Charlie Scharf, who assumed leadership of the bank in 2019. “The Federal Reserve’s decision to lift the asset cap marks a pivotal milestone in our journey to transform Wells Fargo,” Scharf said in a statement. “We are excited to continue to move forward with plans to further increase returns and growth in a deliberate manner supported by the processes and cultural changes we have made.” In recognition of employee contributions, Scharf announced a $2,000 award for all full-time staff, mostly in the form of restricted stock.
After the Fed’s announcement, shares of Wells Fargo jumped 2.7% in after-hours trading. Wells is planning expansion in areas such as credit cards, wealth management and commercial banking.
“Removal of the asset cap represents successful remediation to the required standard based on focused management leadership, strong board oversight, and strict supervision holding the firm accountable,” Michael Barr, a Fed governor who resigned as vice chair for supervision earlier this year, said in a separate statement. “All three will need to continue for the firm to have a sustainable approach.”
The Securities and Exchange Commission said Wells Fargo opened millions of unauthorized or fraudulent customer accounts between 2002 and 2016 so employees could meet sales targets, and pressured customers into buying unnecessary products. Wells Fargo entered into consent orders with federal regulators to develop plans to avoid any further harm to consumers.
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