Wells Fargo Approaches Regulatory Milestone on Asset Cap
Wells Fargo is nearing the conclusion of a process aimed at passing regulatory tests that could lead to the lifting of its $1.95 trillion asset cap next year. This significant step follows the bank’s efforts to rectify issues stemming from the infamous fake accounts scandal, as reported by sources familiar with the matter.
Potential Timeline for Removal
The asset cap, imposed by the Federal Reserve in 2018 due to severe governance and risk management failures, might be lifted as early as the first half of 2025. However, the decision ultimately rests with the Fed’s board of governors, who can choose to uphold the cap if they have lingering concerns regarding the bank’s compliance.
History of Regulatory Challenges
Since the fallout from the scandal in 2016, Wells Fargo has faced substantial fines totaling billions of dollars and a range of regulatory penalties, many of which are still operational. In light of the bank’s ongoing efforts to improve its risk management protocols, the Fed received a third-party review of Wells Fargo’s changes in September, according to Bloomberg News.
A representative from the Federal Reserve recently stated that there is no defined timetable for lifting the asset cap, which represents one of the harshest sanctions imposed by U.S. regulators.
Impact of Potential Asset Cap Removal
If the asset cap is lifted, it would signify a major advancement in Wells Fargo’s recovery journey. The bank’s CEO, Charlie Scharf, noted earlier this year that the cap has severely limited its ability to attract new corporate deposits and expand its trading operations, which are areas where competitors have seen growth.
The bank remains under close scrutiny, particularly from figures like Democratic Senator Elizabeth Warren, who has called on the Fed to refrain from lifting the cap until the bank thoroughly addresses its risk compliance issues.
Performance of Wells Fargo Amidst Restrictions
Wells Fargo’s stock received a boost in pre-market trading, rising by 3% following the news of its progress in lifting the asset cap, although this gain moderated to a 1.3% increase before market opening. Analyst Scott Siefers of Piper Sandler indicated that shares could respond positively to the prospect of the regulatory burden being alleviated.
Broader Context of Regulatory Actions
While Wells Fargo has made significant strides, it still has eight open consent orders, having resolved six since Scharf took the lead in 2019. The bank’s commitment to resolving its regulatory obligations remains a top priority, with the closing of consent orders being viewed as indicators of progress.
The Office of the Comptroller of the Currency lifted a 2016 consent order related to harmful sales practices in February, a move seen as paving the way for the potential removal of the asset cap.
In conclusion, as Wells Fargo works diligently to move past its turbulent history, the potential lifting of the asset cap presents new avenues for growth and competitiveness. The bank remains focused on revitalizing its operations while adhering to the stringent expectations set by regulators.
