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According to the Federal Reserve, Wells Fargo will take part in the recently released programs without having the balance sheet count against the $1.95 trillion cap the bank has.
Wells Fargo & Co (NYSE: WFC), one of the largest banks in the world by market value, has been on the upswing lately. Wells Fargo & Co stock is performing quite well. Yesterday, it closed at $30.28. and by the moment of writing, added 9.45% to be trading at $33.14.
In general, the market is positive now, with the indices jumping and global stocks rising. But while for indices the upgrade is contingent on investors’ belief in slowing the coronavirus, the reason for Wells Fargo & Co stock going up is the Federal Reserve’s decision to ease its regulatory pressure on the bank.
On Wednesday, the Fed said it would “temporarily and narrowly modify” Wells Fargo’s asset cap so that it can participate in the government’s business lending program. In particular, the bank will be able to expand lending to small businesses through the Paycheck Protection Program and the Main Street Lending Program the Fed has recently released. Wells Fargo will take part in the programs without having the balance sheet count against the $1.95 trillion cap it has.
Wells Fargo CEO Charlie Scharf stated:
“While the asset cap does not specifically restrict Wells Fargo’s participation in this program, this action by the Federal Reserve will enable Wells Fargo to provide additional relief for our customers and communities.”
He also noted that Wells Fargo has “much to do” so that the Fed lifts asset limits on a permanent basis.
Wells Fargo Scandal
Wells Fargo is an American multinational financial services company with headquarters in San Francisco, California. It is the largest bank in the world by market value. It is also the fourth-largest bank in the U.S. by assets and the 2nd largest bank by market capitalization.
In 2016, Wells Fargo got in hot water. Its lower-level employees had been creating fake savings and checking accounts to meet sales targets. The scandal brought up revealing other issues, like forcing customers to buy car insurance and losing their homes. In 2018, a series of other mal-practices in Wells Fargo was disclosed, such as changing asset allocation without updating customers and allocating client assets into riskier alternative funds.
After that, the Federal Reserve restricted Wells Fargo’s ability to grow its balance sheet. Until Wells Fargo handles all the issues, it can not grow its assets over $1.95 trillion. In other words, the bank is unable to increase its profits (except for cost-cutting).
At the end of March this year, the Fed’s restriction was still valid. Its officials considered Wells Fargo’s several reforms insufficient. The recent decision to ease its policy is a necessity because of the coronavirus effect on the economy. When the pandemic is over, the Fed will most likely return its embargo for Wells Fargo’s profit growth.