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The US central bank has removed a punitive asset cap imposed on Wells Fargo seven years ago over its “fake accounts” scandal, freeing the US bank to increase lending and expand its businesses.
The lifting of the $2tn cap is an important milestone for the US’s fourth largest bank by assets in its efforts to draw a line under the scandal over the opening of millions of unauthorised customer accounts.
The move, which was announced by the Federal Reserve on Tuesday, underscores the shift towards a more bank-friendly approach in US financial regulation since Donald Trump won last year’s presidential election.
Wells Fargo paid more than $5bn in penalties to regulators and class action claimants over the scandal, where the lender was found to have inflated its growth by pressuring staff into forging signatures, moving money into unauthorised accounts and altering contact details to open accounts without customers’ knowledge.
Charlie Scharf, chief executive of Wells Fargo, said at a conference last week that removing the cap would clear a major obstacle that has weighed heavily on the bank’s management and strategy and kept it “inwardly focused” in recent years.
“It is a combination of our mindset in terms of what we can focus on, as well as just this scarlet letter goes away and we’re not differentiated from the other companies out there,” Scharf told the Bernstein conference in New York.
Since Scharf took over as the bank’s CEO as part of its shake-up in 2019, it has steadily cleared the regulatory restrictions imposed on its operations due to the fake account scandal that erupted in 2016.
Scharf said in a statement on Tuesday that the lifting of the cap was “a huge accomplishment for the 215,000 employees of Wells Fargo, who all contributed to this milestone”, adding that each employee would receive a $2,000 award.
The Fed’s decision to lift the asset cap removes the biggest remaining restriction placed on the bank. It required the bank to keep its total assets below their 2017 level of $1.95tn.
The central bank said it had “determined that Wells Fargo has met all the conditions required by the 2018 enforcement action for removal of the growth restriction”.
The Fed added its decision “reflects the substantial progress the bank has made in addressing its deficiencies”.
Remaining restrictions imposed on Wells Fargo as a result of the fake accounts scandal will “remain in place until the bank satisfies the requirements for their termination”, the Fed said.
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