Federal Reserve Ends Growth Restriction on Wells Fargo After Years of Regulatory Oversight

In early 2018, the Federal Reserve imposed an unprecedented asset cap on Wells Fargo, restricting the bank’s growth as a response to a prolonged history of misconduct.

On Tuesday, the Federal Reserve announced the removal of this restriction, acknowledging that Wells Fargo has sufficiently enhanced its internal governance and risk management systems.

Michael S. Barr, a Federal Reserve governor who recently completed his role as vice chair for supervision, highlighted that the bank’s focused leadership, robust board oversight, and rigorous regulatory supervision were key factors in lifting the asset cap. He emphasized that these improvements must be sustained to ensure long-term stability.

Headquartered in San Francisco, Wells Fargo welcomed the lifting of the sanction that has limited its expansion for over seven years. Chief Executive Charles W. Scharf described the development as a crucial milestone in the bank’s ongoing transformation.

“Our company today is fundamentally different and far more resilient because of the efforts we have undertaken,” Scharf remarked.

In recognition of this progress, Wells Fargo announced it will award nearly all of its 215,000 full-time employees with a $2,000 value incentive, primarily distributed as restricted stock grants. The initiative is intended to offer employees an opportunity to share in the company’s future growth.

Scharf assumed the CEO role in 2019 following a series of scandals that led to the departure of two previous leaders. In 2016, investigations revealed that Wells Fargo employees had opened unauthorized accounts for customers over several years to meet aggressive sales targets.

Subsequent findings uncovered further issues, including wrongful home foreclosures and auto repossessions. The bank faced billions in fines and restitution payments to affected customers. Former retail banking head Carrie L. Tolstedt faced criminal charges but avoided prison through a plea agreement.

The asset cap hindered Wells Fargo’s ability to compete with peers, causing its ranking among the largest U.S. banks to drop from third to fourth, with assets near $1.9 trillion.

With the restriction lifted, Wells Fargo is positioned to grow its lending operations, expand deposits, and pursue acquisitions of other financial entities. Following the Federal Reserve’s announcement, the bank’s stock rose approximately 3.7 percent in after-hours trading.

While Wells Fargo was the first bank to receive such a stringent regulatory penalty, it is no longer alone. Last year, the Office of the Comptroller of the Currency imposed an asset cap on TD Bank due to violations of anti-money-laundering regulations.

Ian Katz, an analyst at Capital Alpha Partners, noted that few anticipated the asset cap to last as long as it did. Its removal not only marks Wells Fargo’s advancement but also reflects a more accommodative stance by the Federal Reserve toward banks.