Wells Fargo made significant strides on Thursday towards having its asset cap lifted after the U.S. Office of the Comptroller of the Currency (OCC) removed a key penalty on the bank. This marks a major step in the bank’s ongoing efforts to rectify past regulatory issues and return to growth.
Progress After Years of Scrutiny
The lifting of the OCC’s 2015 order represents the thirteenth enforcement action Wells Fargo has cleared since 2019, and the seventh this year alone. While the removal of this particular consent order is a positive development, Wells Fargo still faces one major hurdle: the $1.95 trillion asset cap imposed by the Federal Reserve in 2018. This cap restricts the bank from growing its balance sheet until its governance and controls are improved to the satisfaction of regulators.
A Step Forward for CEO Charles Scharf
Wells Fargo CEO Charles Scharf, who has been leading a comprehensive cleanup effort since 2019, sees this move as a testament to the progress made in addressing the bank’s past misconduct. The lifting of the OCC’s order was seen as an encouraging sign that the bank is on the right path. Following the announcement, Wells Fargo’s shares initially rose 1%, although the gains were later pared due to broader market weaknesses.
Regulatory Scrutiny Post-Scandal
The bank’s regulatory troubles began in earnest after the fake accounts scandal in 2016, which led to billions in fines and lasting damage to its reputation. Since 2018, Wells Fargo has been subject to the asset cap imposed by the Federal Reserve, one of the most severe regulatory penalties available. The cap has prevented the bank from growing its balance sheet beyond $1.95 trillion until it demonstrates sufficient improvement in governance and controls.
The Path Ahead: Lifting the Final Hurdle
Despite these restrictions, Wells Fargo has remained focused on rebuilding and strengthening its operations. The remaining task is to have the asset cap removed, allowing the bank to expand its balance sheet and grow once again. Analysts, including Stephen Biggar from Argus Research, highlight that the bank has made substantial progress under Scharf’s leadership. Once the asset cap is lifted, Wells Fargo expects to see significant growth in areas like wholesale deposits and market businesses, which have been carefully managed under the current restrictions.
Regulatory Clean-Up: A Long Road
Wells Fargo’s recovery from its regulatory issues will continue to be under scrutiny, but the progress made so far is seen as a promising sign. According to Chris Marinac from Janney Montgomery Scott, it is time for Wells Fargo to catch up to its peers, who have been able to grow without such constraints. The final step remains to ensure that no further issues arise and that Wells Fargo can continue its comeback.
