Officials at the Federal Reserve signaled to Wells Fargo they have accepted the bank's proposal to overhaul its risk management and governance, Bloomberg reported Wednesday.
That green light marks the second of four hurdles the bank must surmount to be released from the $1.95 trillion asset cap the central bank put on the San Francisco-based lender three years ago in response to a 2016 fake-accounts scandal that has cost the bank billions of dollars in fines.
- Next, Wells Fargo must adopt and implement the overhaul plan in a manner favored by the Fed, and undergo a third-party review that could take months. The central bank's board will then have to vote to end the sanction.
A spokesperson for Wells Fargo declined to comment on the Bloomberg report, which cited unnamed sources, and referred Banking Dive to comments the lender has made in the past.
"The Federal Reserve will determine when the work to fulfill the requirements of the consent order is done to their satisfaction," the bank said. "We are focused on doing the work. We maintain strong levels of liquidity and capital, and we are committed to using our financial strength to help support the U.S. economy and our clients while operating in compliance with the asset cap."
Wells Fargo, whose executives once publicly predicted it would satisfy the regulator's requirements by the end of 2018, has taken a more cautious approach under CEO Charlie Scharf, who joined the bank in October 2019.
Scharf said in his first earnings call as Wells's top executive, in January 2020, that he would prioritize the resolution of Wells Fargo's regulatory issues. The bank then had 12 public enforcement actions against it. That number is now 10.
The bank submitted its plan, which spans thousands of pages, in September, Bloomberg reported.
"While we believe we're making meaningful progress, there is substantial work to do," he told analysts during the bank's most recent earnings call last month.
In an October earnings call, Scharf acknowledged the bank "will not be able to extract the full potential out of the franchise until after the asset cap has gone."
The asset cap has stifled Wells Fargo's growth as its competitors, JPMorgan Chase, Citi and Bank of America, saw a swell in deposits amid the early months of the coronavirus pandemic.
The bank has missed out on $4 billion in profits since the restriction was imposed, Bloomberg reported in August, and the cap has cost the bank more than $220 billion in market value, the wire service estimated.
The $1.95 trillion figure matches the bank's size at the end of 2017.