Wells Fargo & Co. has submitted a critical review to the Fed that could aid the lender's case for lifting the asset cap imposed on the bank nearly six years ago. According to people familiar with the matter, completing the review is a major step toward releasing Wells Fargo from the regulatory tethers that have constrained its growth since the mid-2000s financial crisis.
The ban was capped at $1.95 trillion and has been in place since 2018 when it was initiated by the Fed as punitive action against the bank following a series of scandals that entailed creating millions of sham accounts to hit sales quotas. The grounding penalty greatly reduced the expansion capacity of the bank's balance sheet and, by extension, the scalability of its operations and profitability.
Significantly, the newest review has focused on the enhancements of governance and risk management practices at Wells Fargo as one of the most critical areas where regulators felt the bank needed to make serious enhancements. According to people familiar with the matter, it was far-reaching in focus and concentrative on key aspects related to board oversight and controls on risk-taking activities; even to shift the dynamics of the strategic function of the bank.
Federal officials will likely scrutinize this review well to ensure that all cause for concern is sufficiently covered. If the Fed gives a thumbs-up to the submission, it would mean that Wells Fargo has done much to clean up not just its past mistakes but to build a solid framework in which there will be no repetitions of the same mistake in the future.
It is not known how long the Fed's review will take. But sources close to the matter say lifting the asset cap would enable Wells Fargo to fully restart its growth, more effectively compete with lenders including JPMorgan Chase & Co. and Bank of America Corp., and serve its customers more completely.
The filing represents the newest attempt from the top by CEO Charles Scharf, who joined in October 2019. Since his arrival, Scharf has touted changes in the bank's senior leadership, adding experienced executives; investments in technology and infrastructure; and refocusing the organization toward safer, more customercentric operations.
This move by Scharf was seen to be prudent by the market analysts. They said that removing the cap would be the most potent catalyst for the firm's stock, underperforming its peers over the last few years. Overcoming this hurdle also might restore confidence amongst investors and strengthen the position of Wells Fargo in the markets.
The bank has already taken preliminary steps to overcome such limitations of the cap by optimizing their existing assets and divesting non-core businesses with a view to streamline operations. Yet, the taking away of this regulatory cap will provide leeway to seek and implement more aggressive growth strategies.
This review, being closely monitored by the financial world, will most surely bring forth quite dramatic effects not only with Wells Fargo but the wider regulatory landscape and maybe even shape future policy decisions when it comes to corporate governance and compliance.
#WellsFargo #FederalReserve #AssetCap #BankingReform #CEOCharlesScharf #RiskManagement #FinancialSector #MarketGrowth
Author: Victoria Adams
