Fed eases Wells Fargo growth cap to let it issue emergency coronavirus loans

The Federal Reserve on Wednesday gave Wells Fargo the regulatory green light to issue emergency coronavirus loans to small businesses without violating the unprecedented restrictions imposed on it by the central bank in 2018.

The Fed board voted unanimously to allow Wells Fargo to issue the loans through a program created in the coronavirus economic rescue bill enacted last week without them counting toward a cap on the bank’s asset growth.

Fed Chairman Jerome Powell, Vice Chairman Richard Clarida, and Governors Lael Brainard and Michelle Bowman voted in favor of the move. Randal Quarles, the Fed vice chairman of supervision, abstained from the vote and has recused himself from all Wells Fargo-related matters due to decades-old family connections to the bank.

The Fed’s Wednesday decision would allow Wells Fargo, the country’s fourth largest bank, to participate in the Paycheck Protection Program (PPP), which offers a total of $349 billion in forgivable loans to businesses with 500 employees or fewer.

Wells Fargo has been prevented from growing beyond its December 2017 asset levels since the Fed capped its growth in early 2018 after the bank was sued by regulators for opening and charging fees on millions of accounts for customers without their consent. The Fed’s decision would allow Wells Fargo to lend under the PPP while maintaining the asset cap overall.

Wells Fargo has been under intense regulatory and political scrutiny since 2016, paying more than $3 billion in fines and legal settlements related to more than a decade of abusive sales practices and inadequate internal oversight. 

Sen. Sherrod Brown (Ohio), ranking Democrat on the Senate Banking Committee, criticized the Fed for easing up on Wells Fargo before the bank met the necessary requirement for lifting the asset cap.

“Wells Fargo has demonstrated it is too large to manage, and time and time again that it can’t be trusted to do right by their customers and employees,” Brown said in a statement.

“If the Fed wants Wells to focus on community lending, and if Wells is truly committed to its communities and customers, the bank could instead have given up other risky lines of business in order to serve small businesses.”

But other advocates for strict financial rules praised the Fed for throwing a lifeline to Wells Fargo customers.

“The cap was meant to sanction Wells Fargo, not its customers when they need as much help as fast as possible due to no fault of their own,” said Dennis Kelleher, president of Better Markets, a nonprofit that supports boosting bank regulations.

“Wells Fargo will now be able to provide that help while still otherwise being fully subject to the sanction of the cap and other regulatory measures.”