UPDATE: April 8, 2020: The Federal Reserve announced Wednesday that it would temporarily alter the asset cap placed on Wells Fargo so that it can provide additional support to small businesses affected by the coronavirus pandemic. "The change today provides additional support to small businesses hurt by the economic effects of the coronavirus by allowing activities from the [Paycheck Protection Program] and the Main Street Lending Program to not count against the cap," the regulator said in a press release.
The Fed said the benefits the bank garners from the PPP and the Main Street Lending Program will be transferred to the U.S. Treasury or to nonprofit organizations that support small businesses. The regulator said the change will be in place as long as the facilities are active and does not otherwise modify the Fed's February 2018 enforcement action against the bank.
Federal Reserve officials are considering lifting a $1.95 trillion asset cap placed on Wells Fargo in 2018, making it easier for the bank to lend to small businesses affected by the coronavirus pandemic, according to The New York Times.
The regulator, which instituted the cap in response to the bank's widespread consumer abuses, including its 2016 fake-accounts scandal, is discussing a "temporary truce" with the bank, sources told the paper Monday.
- The report follows the bank's announcement Sunday that it closed its loan window tied to the Small Business Administration's Paycheck Protection Program (PPP) and would lend up to $10 billion as part of its participation in the $350 billion small-business relief effort.
Wells Fargo's senior executives are in talks with Fed officials about a short-term pause in the penalties, sources told the Times. The pause would be long enough to allow the bank handle more loan volume, they said.
The discussions intensified as lenders were inundated with a flood of small-business loan requests over the past week, the Times reported.
Anticipating the demand, the San Francisco-based bank reportedly reached out to the Fed last month to ask that the asset cap be lifted so it can better serve businesses and customers hurt by the coronavirus outbreak.
The Fed has said it would only lift the cap once the bank "sufficiently improves its governance and controls."
Since joining the bank in October, Wells Fargo CEO Charlie Scharf has prioritized resolving the bank’s regulatory issues and reiterated the commitment Sunday, emphasizing the actions that spurred the Fed to impose the cap were brought on by the previous C-suite.
"Today, the company continues to operate in compliance with an asset cap imposed by its regulator due to actions of past leadership,” Scharf said Sunday. "While we are actively working to create balance sheet capacity to lend, we are limited in our ongoing ability to use our strong capital and liquidity position to extend additional credit.”
The asset cap restricts the bank's ability to serve as many customers as the bank would like under the PPP, Scharf added.
"If the Fed does lift the asset cap on Wells Fargo, then the bank should be required to submit weekly data on exactly how many loans it is not only approving but disbursing to individuals and small businesses," Mayra Rodriguez Valladares, a capital market consultant and trainer who works with banks on risk and management issues, told Banking Dive on Monday.
"Intense supervision is required of Wells Fargo to make sure that it is indeed fulfilling a critical mission to individuals and companies adversely impacted by COVID-19," Valladares said.