The Federal Reserve is modifying the asset cap it has imposed on Wells Fargo so the bank can participate in the government’s business lending programs.
The US central bank said it would ease the limit it had put in place after the bank’s fake account scandal to allow it to make more loans under the government assistance programs for covid-hit small businesses.
Wells Fargo is the third-largest bank in the U.S. by assets, making its participation in the lending programs critical.
Under the new arrangement Wells Fargo will be able to participate in the government’s coronavirus relief programme for SMEs without having it count against the $1.95tn cap that will remain in place.
The plan also calls for Wells Fargo to return proceeds it gets from the Payment Protection Plan and a coming Main Street lending program either back to the Treasury Department or to non-profit agencies.
A lifeline for small businesses
The $350bn relief package is part of the $2tn coronavirus support package passed by the US Congress in March.
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The effort, known as the Paycheck Protection Program, is intended to encourage banks to lend to companies that agree to keep workers on the payroll.
Most — or, in some cases, all — of a loan would be forgiven if the borrower retained its workers and didn’t cut their wages. The government would repay lenders for the forgiven portions of the loans.
Companies with 500 or fewer employees can apply, on a first-come-first-serve basis. Banks will give them the short-term funding they need to keep workers on the books and cover expenses as the pandemic stops their cashflow.
Wells Fargo “still held accountable”
The Fed had imposed the restrictions following the bank’s fake account scandal in which it created millions of accounts for customers without their knowledge.
Associates were under sales pressure in a programme that Wells Fargo has since abandoned.
While easing the restriction, the Fed noted that Wells Fargo had not been banned from participating in any of the lending programs, but was constrained in how much it could take on its balance sheet.
Wells Fargo had $1.7tn in consolidated assets as of the end of 2019.
“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 its statement.