American financial services giant Wells Fargo is reportedly in the last stages of a process to pass regulatory tests to lift a USD 1.95 trillion asset cap in 2025 after fixing problems from its fake accounts scandal, stated a Reuters report.
The punishment, imposed by the United States Federal Reserve in 2018, could be removed as early as the first half of 2025, one of the sources told the news agency. The cap was imposed to make Wells Fargo fix its failings in governance and risk management after years of consumer abuses. The asset cap is seen as one of the toughest punishments that American regulators can put in place, and its removal requires a vote by the Federal Reserve’s board of governors.
However, the report also stated that while the Wells Fargo had done all the work required to lift the cap, governors could still keep the punishment in place if they have concerns or are not fully satisfied with the fixes. A Fed spokesperson, on the other hand, told that the central bank has no timetable to lift the asset cap.
“Lifting the restrictions would be a major step forward for the bank’s cleanup efforts. Since the scandal emerged in 2016, it has been fined billions of dollars and slapped with a raft of regulatory punishments, some of which are still in place,” Reuters reported further.
As part of the compliance process, the bank sent a third-party review to the Federal Reserve to demonstrate it had overhauled its risk management and controls, Bloomberg News reported in September 2024. Wells Fargo faced a public outcry and intense scrutiny in the wake of what the Fed called “pervasive and persistent misconduct” that harmed consumers. Most recently, Democratic Senator Elizabeth Warren warned the Fed not to remove the cap until the bank had fixed its risk and compliance issues.
As Republican President-elect Donald Trump is all set to enter the White House in January 2025, Wall Street bankers expect his administration to overhaul bank regulation and slash burdensome rules on capital and mergers. Wells Fargo CEO Charlie Scharf said earlier 2024 that the asset cap is curtailing its ability to take in more corporate deposits and expand its trading business, where peers have grown.
“The bank has managed its wholesale deposits and markets businesses carefully to comply with the cap, and those are areas that the company would expect to grow when the restrictions are lifted,” Scharf told analysts in October, while adding, “Beyond that, it’s just normal growth opportunities that we would see across all different parts of the company.”
Rival banks have expanded while the cap was in place. JPMorgan Chase’s assets swelled by more than USD 1.5 trillion since the start of 2018, while Bank of America and PNC Financial added about USD 1 trillion and nearly USD 200 billion, respectively.
In February 2024, the Office of the Comptroller of the Currency terminated a 2016 punishment, called a consent order, for the bank’s harmful sales practices. The decision was seen as paving the way for the asset cap to be lifted.
“Under the 2016 consent order, the bank was mandated to change the way it offered and sold products and services to consumers, and take additional actions to protect customers and employees,” Reuters reported further.
“A consent order is a formal, public enforcement action between a regulator and a bank, which often comes with a fine and orders to address an issue in a timely fashion. The bank still has eight open consent orders. It has closed six since Scharf took the helm in 2019,” it added further.
The Wells Fargo CEO has repeatedly said the regulatory work is the financial venture’s top priority, and cited the closing of consent orders as signs of progress.