Wells Fargo received regulatory clearance Tuesday to grow its balance sheet for the first time in seven years, after the Federal Reserve lifted a punitive $1.95 trillion cap on the bank's assets. The decision, which follows years of compliance efforts and leadership changes, marks a turning point in the San Francisco-based bank's recovery from its fake accounts scandal and broader risk-management failures.
The Fed imposed the unprecedented restriction in 2018 following revelations that Wells Fargo employees had opened millions of unauthorized customer accounts to meet aggressive sales goals. The move barred the bank from expanding its balance sheet until it could demonstrate meaningful reform. On Tuesday, the Fed said Wells Fargo had made "substantial progress" in governance and risk management and had completed a third-party review of its remediation efforts.
"This marks the end of a painful period for Wells Fargo, and also serves as a reminder for financial institutions to be sure customer interests are always aligned with growth goals," said Stephen Biggar, banking analyst at Argus Research.
Shares of Wells Fargo rose 2.7% in after-hours trading following the announcement. The decision was unanimously approved by the Fed's board and is expected to allow the bank to expand lending, increase deposits, and pursue acquisitions without regulatory constraints.
Wells Fargo CEO Charlie Scharf, who took the reins in 2019 to lead a turnaround, called the development a "pivotal milestone." He added that all full-time employees would receive a $2,000 bonus in recognition of the achievement. "We are a different and far stronger company today because of the work we've done," Scharf said.
JPMorgan Chase CEO Jamie Dimon, a former mentor to Scharf, weighed in with praise, stating: "Charlie and his team deserve a lot of credit - having worked extremely hard to resolve the company's heritage issues."
The decision provides Wells Fargo with fresh capital allocation flexibility and reputational relief after nearly a decade under the microscope. "This... removes a major regulatory overhang," said Mac Sykes, portfolio manager at Gabelli Funds. "It provides them a reputational boost which is helpful, provides more and different capital allocation opportunities and allows them to grow their balance sheet."
The bank still faces other Fed-imposed consent orders stemming from additional scandals, including the improper charging of mortgage fees and forcing unnecessary auto insurance on borrowers. Wells Fargo has resolved more than a dozen consent orders since 2019 and continues to work through remaining issues.
The asset cap had stifled Wells Fargo's competitive standing. While peers such as JPMorgan Chase, Bank of America, and PNC Financial added trillions in assets since 2018, Wells Fargo was restricted from growth. Scharf told analysts in October that the cap had curbed the bank's ability to attract corporate deposits and expand its markets business.
