The U.S. Federal Reserve said on Wednesday it would “temporarily and narrowly” modify the growth restriction on Wells Fargo & Co’s (WFC.N) balance sheet, allowing the bank to make more loans under government assistance programs for small businesses hurt by the coronavirus disruption.
The change will allow the bank to make additional loans under the $350 billion small business payroll protection program approved by Congress last month and the Fed’s forthcoming Main Street Lending Program, and will be in place as long as those facilities are active, the central bank said.
The announcement prompted Wells Fargo to announce it was expanding its participation in the small business rescue program after initially restricting its lending capacity at $10 billion due to regulatory requirements despite seeing high demand.
Wells Fargo, one of the largest U.S. small business lenders, received over 170,000 indications of interest for the program within the first two days.
Small businesses have been hit hard by the COVID1-19 pandemic, which has shuttered, at least temporarily, non-essential businesses in many states and curbed consumer spending.
The bank has been urging the Fed to lift the asset cap so it can unleash its full lending capacity to support struggling businesses and consumers, but regulators were initially cold to the idea, Reuters has reported.
The liquidity crunch facing Main Street has helped the scandal-plagued bank pick up unlikely advocates, including Wall Street watchdog group Better Markets and former Federal Deposit Insurance Corp (FDIC) chair Sheila Bair, who have said the Fed should grant the bank more leeway to make sure small businesses can access much-needed funds.
Loans made under the new government programs will not count toward the $1.95 trillion asset cap the Fed imposed on the bank in February 2018. The Fed has said it would only remove the cap when Wells Fargo had improved its governance and risk controls following a wave of sales practice scandals.
“To date the firm has to date not satisfied all of the requirements for removal of the asset growth restriction,” Fed officials said in the amended consent order on Wednesday.
Under the new conditions, Wells Fargo will have to turn over any fees generated from its participation in the program to the U.S. Treasury or to nonprofits approved by the Fed.