Wells Fargo asset cap is preventing an additional $384B of loans - Business Insider

This story was delivered to Business Insider Intelligence Banking Briefing subscribers earlier this morning.To get this story plus others to your inbox each day, hours before they're published on Business Insider, click here.Wells Fargo has the capacity to lend as much as $384 billion worth of additional loans to consumers and businesses trying to get through the coronavirus crisis, but it is unable to make those loans due to the asset cap imposed on it by the Federal Reserve, Bloomberg reports.

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The $1.95 trillion cap was imposed in 2018 in response to Wells Fargo's 2016 fake account scandal, and it limits what the bank can hold on its balance sheet. While the bank asked the Fed just last week to remove the cap, at least temporarily, the Fed remains skeptical that Wells Fargo is ready and feels that the bank has yet to fully address the concerns that led to the cap in the first place, people familiar with the matter told Bloomberg.The bank has been ramping up its efforts to convince the Fed it has reformed itself enough to have the cap removed. The biggest example of these efforts is the complete overhaul of Wells Fargo's corporate structure planned by CEO Charles Scharf.The move — which was announced in February and represents Scharf's first major structural change to the bank since his appointment as CEO in October 2019 — will split the bank's three business units into five, with the heads of each reporting directly to Mr. Scarf. The restructure is meant to increase oversight and accountability in hopes of showing regulators that the bank has the risk management framework and accountability required to properly govern a bank of Wells Fargo's size.But the Fed's ongoing reluctance to remove its restrictions on the bank, even during a global crisis in which consumers and businesses will likely need to take out loans, suggests that it thinks Wells Fargo still has a long way to go. The Fed has been encouraging the biggest US lenders to use whatever excess capital they have to grow lending during the coronavirus pandemic, and together the biggest banks in the nation have enough among them to grow lending by $1.6 trillion, per Bloomberg.Even though Wells Fargo has the most firepower of these banks with its $384 billion in potential additional loans, the fact that the Fed still remains reticent to remove its growth cap, even temporarily, shows just how much work the regulatory body still feels the bank needs to do to prove it has suitably reformed its practices.Want to read more stories like this one？ Here's how to get access:Business Insider Intelligence analyzes the banking industry and provides in-depth analyst reports, proprietary forecasts, customizable charts, and more. /> /> Check if your company has BII Enterprise membership access.Sign up for the Banking Briefing, Business Insider Intelligence's expert email newsletter tailored for today's (and tomorrow's) decision-makers in the financial services industry, delivered to your inbox 6x a week. /> /> Get StartedExplore related topics in more depth. /> /> Visit Our Report StoreCurrent subscribers can log in to read the briefing here.