Wells Fargo asset cap lifted by Fed after seven years

After years of regulatory restrictions, Wells Fargo will be able to expand its Wall Street business. The Federal Reserve announced Tuesday that it is lifting the 2018 asset cap on the bank.

The Fed had capped the bank’s assets at $2 trillion after Wells Fargo admitted to opening millions of unauthorized accounts. 

This punishment, the most severe ever imposed on a US bank, forced Wells Fargo to halt its expansion and focus on fixing internal issues.

The restriction cost the bank an estimated $39 billion in profits.

The backstory
Following the 2008 financial crisis, Wells Fargo employees created more than 3 million fake credit card accounts. The scandal erupted in 2016, and the bank faced a public outcry.

It was slapped with a $185 million fine in 2016, and its then-CEO, John Stumpf, resigned.

In 2018, Janet Yellen announced a $1.95 trillion asset cap on Wells Fargo until the Fed felt convinced that the bank had improved its governance and risk controls.

Then, in 2022, the bank was fined a record $1.7 billion by the Consumer Financial Protection Bureau.

Now, Wells Fargo can freely make more loans, accept new deposits, and expand its Wall Street operations. 

Current CEO Charlie Scharf, brought in to reform the bank in 2019, called the move a “pivotal milestone.”

With the $1.95 trillion cap gone, Wells Fargo can now chase rivals JPMorgan and Bank of America. Scharf has already restructured operations, cut 60,000 jobs, and sold underperforming units. 

Challenges remain
Though the Fed lifted the asset cap, some restrictions from 2018 still remain. The scandal had severely damaged the bank’s reputation and cost it market share, but executives hope this change marks a new chapter for the bank.