Wells Fargo’s Costly Asset Cap Likely to Be Lifted in 2025

Wells Fargo is counting down the days to freedom. 

Reuters reported Tuesday that America’s fourth largest bank, which has been barred from adding assets to its balance sheet by US regulators since 2018, is likely to have the handcuffs taken off next year, citing three sources.

Knockin’ on Seven’s Door

The scandal that got Wells Fargo in hot water came to light in September 2016 after customers started noticing weird charges or receiving credit cards they never ordered. Turns out employees at the San Francisco-based bank were behind it: They opened millions of fraudulent accounts in the names of customers, enrolling them in financial products and services without their consent to try and meet aggressive internal sales targets.

The revelation was a massive blow to a firm that had been applauded for eschewing risks in the leadup to the 2007 subprime crisis and cast itself as a stable alternative to Wall Street greed. As then-Fed Chair Janet Yellen approached the end of her term in 2018, the central bank levied one of the most costly sanctions in history, limiting the bank to its roughly $1.95 trillion of assets indefinitely. Now almost seven years and one CEO later, this purgatory may soon end, and that’s huge for the bank:

• Wells Fargo has missed out on billions in profits since the cap was implemented while rivals have added to their business: JPMorgan Chase now has $4.2 trillion of assets, a more than 60% increase since 2018. In other words, it added almost one Wells Fargo to its balance sheet. Bank of America, now with $3.3 trillion in assets, has added roughly $1 trillion.
• Not until last month did Wells Fargo shares top their previous February 2018 high of $64—they’re up 58% this year, currently just below $78. Meanwhile, the bank is spending $2.5 billion more per year than in 2018 on risk and control, having added 10,000 staff in the area, CEO Charles Scharf said earlier this year.

The Decision: Wells Fargo sent a third-party review of its reforms to risk and control practices to the Fed for sign-off, Bloomberg reported in September. To finally be freed of the asset cap, it will now need to pass a vote of the Fed’s board of governors.