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Fed Modifies Wells Fargo's Asset Cap

By Bram Berkowitz – Updated Apr 8, 2020 at 12:28PM

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The temporary and narrow modification will allow Wells Fargo to participate in new SBA lending approved as part of the stimulus to aid struggling small businesses.

The Federal Reserve has temporarily modified the asset cap it placed on Wells Fargo (WFC -2.67%) two years ago so the bank can make small-business loans as the government tries to ease the effects of the coronavirus pandemic. Wells Fargo is one of the nation's top small-business lenders.

The asset cap was one punishment handed down following a sweeping scandal in which Wells Fargo created millions of fraudulent accounts. The Fed limited the bank to $1.95 trillion in assets until it fixed internal controls -- a limit it had nearly reached by the end of last year.

Wells Fargo

Image Source: Getty

But then the government approved nearly $350 billion in new lending capacity through the Small Business Administration (SBA) to assist struggling small businesses as part of the recent $2 trillion stimulus. Most of this lending will be disbursed through banks, which have been inundated with applications since the stimulus' Paycheck Protection Program launched Friday.

Wells Fargo said it would have to cap its participation in the program to $10 billion due to the asset cap. Meanwhile, other large banks, like JPMorgan Chase and Bank of America, have already received tens of billions in loan requests.

Wells Fargo is one of the top SBA lenders in the country. The bank says it serves approximately 3 million U.S. small-business owners. It also says it has loaned more money to small businesses than any other bank between 2002 and 2017. 

The Fed said the asset-cap modification will be in place for as long as the lending program lasts, and it doesn't otherwise change the Fed's enforcement action against Wells Fargo.

It also said any benefits Wells Fargo receives -- perhaps loan fees -- will be transferred to the U.S. Treasury or to nonprofit organizations approved by the Fed that support small businesses.

 

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$40.41 (-2.67%) $-1.11
Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$31.73 (-2.37%) $0.77
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
JPM
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