The Federal Reserve said it will temporarily ease its regulatory pressure on Wells Fargo to allow the massive lender to underwrite emergency small business loans under the Paycheck Protection Program.
The Fed announced Wednesday that it will allow Wells Fargo to exceed the asset cap that the central bank had imposed on the bank in 2018 after revelations that the company had opened millions of accounts in customers’ names without their permission.
Wells Fargo was barred from growing its balance sheet until it could prove to regulators that it had cleaned up its act. Two CEO changes later, the bank is still working through those efforts.
But the asset cap forced the company to quickly close its PPP application process over the weekend. The bank said its participation in the program would be limited to $10 billion because any lending in excess of that risked surpassing the Fed’s asset cap.
The Fed will now allow the San Francisco-based bank to exclude any PPP loans from any calculation of its asset growth. The Fed also said it would allow Wells Fargo to exclude any loans made under the forthcoming Main Street Business Lending Program, which the central bank has yet to set up.
Wells Fargo said it would re-open its PPP website for applications beginning Wednesday afternoon.
In a statement, Wells Fargo CEO Charlie Scharf said the order “does not, and should not, in any way relieve us of our obligations under the consent order” and committed to meeting the requirements under the Fed’s 2018 order.
“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,” Scharf said.
The PPP cap hobbled the largest small business lender in the country. Wells Fargo has about 3 million small business clients and claims it loaned more money to small businesses than any other bank, based on data between 2002 and 2017.
The Fed had received calls to ease the asset cap on Wells Fargo as the logistical challenges with administering the $349 billion in PPP loans continued. Former Federal Deposit Insurance Corp. Chair Sheila Bair tweeted Monday that the Fed needed to be “given latitude.”
OK. I’ll go out on a limb here. I think Wells Fargo should be given latitude to make CARES Act small business loans even if that expands its balance sheet beyond current regulatory limits.— Sheila Bair (@SheilaBair2013) April 6, 2020
The Fed said nothing else about the February 2018 enforcement order is changed by the temporary tweak.
“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,” the Fed said in a statement.
The Fed added that any benefits made from Wells Fargo’s PPP or Main Street Lending Program loans will be forfeited to the U.S. Treasury or to non-profits supporting small businesses.
Story updated at 1:15 p.m. ET on April 8 to include comment from Wells Fargo.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.