The Federal Reserve has temporarily lifted a $10-billion asset cap on Wells Fargo so it can continue providing emergency loans to small businesses hit by the coronavirus crisis.
Matt Egan reported the news for CNN:
The Federal Reserve is temporarily letting Wells Fargo out of the penalty box, freeing the troubled bank to aggressively lend to small businesses struggling to survive the coronavirus crisis.
The change will allow Wells Fargo to participate only in emergency programs designed to help companies harmed by the health crisis, including a forgivable loan program for small businesses. The Fed said the so-called asset cap will be snapped back on once those emergency programs are inactive.
In response, Wells Fargo said it will immediately expand its participation in the forgivable loan program, known as the Payroll Protection Program, by offering loans to a broader set of small businesses and nonprofits. Wells Fargo, one of the nation’s largest lenders to small businesses, said it received more than 170,000 indications of interest in the program during the first two days alone.
“This action by the Federal Reserve will enable Wells Fargo to provide additional relief for our customers and communities,” Wells Fargo CEO Charlie Scharf said in a statement.
Forbes’s Sarah Hansen wrote:
Topline: The Federal Reserve will allow Wells Fargo WFC to temporarily exceed the asset cap that it had imposed on the bank in 2018 in order to allow it to participate in the emergency small business stimulus loan program.
The Fed imposed the asset cap on Wells Fargo after it was revealed that the bank had opened millions of fake accounts for customers without their knowledge or permission.
“Due to the extraordinary disruptions from the coronavirus, the Federal Reserve Board on Wednesday announced that it will temporarily and narrowly modify the growth restriction on Wells Fargo so that it can provide additional support to small businesses,” the Fed said in a statement.
“The Board continues to hold the company accountable for successfully addressing the widespread breakdowns that resulted in harm to consumers identified as part of that action and for completing the requirements of the agreement,” it added.
Wells Fargo will only be allowed to exceed the cap to make loans as part of the Paycheck Protection Program under the CARES Act and as part of the Fed’s forthcoming Main Street Lending Program.
Imani Moise from Reuters noted:
Wells Fargo, one of the largest U.S. small business lenders, received over 170,000 indications of interest for the program within the first two days.
Small businesses have been hit hard by the COVID1-19 pandemic, which has shuttered, at least temporarily, non-essential businesses in many states and curbed consumer spending.
The bank has been urging the Fed to lift the asset cap so it can unleash its full lending capacity to support struggling businesses and consumers, but regulators were initially cold to the idea, Reuters has reported.
The liquidity crunch facing Main Street has helped the scandal-plagued bank pick up unlikely advocates, including Wall Street watchdog group Better Markets and former Federal Deposit Insurance Corp (FDIC) chair Sheila Bair, who have said the Fed should grant the bank more leeway to make sure small businesses can access much-needed funds.
Loans made under the new government programs will not count toward the $1.95 trillion asset cap the Fed imposed on the bank in February 2018. The Fed has said it would only remove the cap when Wells Fargo had improved its governance and risk controls following a wave of sales practice scandals.