Wells Fargo’s Latest Setback: What’s Happening?
Wells Fargo which is one of the largest banks in the United States is facing another regulatory problem. This new issue could cause a delay in the removal of a strict limit known as a "asset cap". This has been in effect since 2018. But what does this all mean and why is it important?
What Is the Asset Cap?
Following Wells Fargo's 2016 fake accounts crisis the US Federal Reserve placed an asset cap. The crisis in which the bank was found to have opened millions of accounts without the consent of its customers caused massive mistrust. To punish Wells Fargo and ensure that it addressed its faults the Federal Reserve limited the bank's assets to $1.95 trillion. This limit stops the bank from expanding further unless it addresses its internal issues.
The New Problem
Recently the Office of the Comptroller of the Currency (OCC) found that Wells Fargo's processes for preventing illegal transactions such as money laundering. Although the OCC did not impose a fine this latest findings adds to the bank's already large record of issues. This suggests that Wells Fargo will most likely take longer to lift the asset cap.
Why Does This Matter?
The asset cap makes it more difficult for Wells Fargo to compete with other large banks such as JPMorgan Chase and Bank of America. While other banks are expanding and investing in new areas Wells Fargo is trapped. They are unable to raise its assets until it can prove to authorities that it has resolved its concerns.
The bank has already paid huge amounts to regulators for prior errors including billions of dollars in fines. However the longer this goes on the higher fees will be for Wells Fargo. They must spend money repairing their difficulties and may miss out on business opportunities.
What Happens Next?
To lift the asset cap Wells Fargo has to improve its risk management and internal controls. The new OCC enforcement action suggests they're not quite there yet and it highlights the question of when they'll be able to get out of this restriction.
Analysts believe that this may limit Wells Fargo's capacity to expand into more profitable but riskier business areas such as trading or large scale corporate loans. The longer it takes to settle these regulatory difficulties the greater the impact on the bank's bottom line.
