Wells Fargo shares were higher on Wednesday and Thursday after the Federal Reserve announced its approval of Wells Fargo’s proposal in overhauling its governance functions, a step previously required to release the financial services company from regulatory restrictions.
The bank is limited to having $1.95 trillion on its balance sheet, which it held in 2017. The limitation was a rarely seen penalty in the banking services world and was enacted by regulators after the bank’s many scandals linked to its internal controls.
On Wednesday, Wells Fargo shares jumped by more than 4 percent higher, and by mid-day Thursday, its shares stood .75 percent higher than the previous closing.
According to Bloomberg News, the proposal by Wells Fargo brings it closer to having limitations on its assets withdrawn. Wells Fargo’s assets under management have been limited and capped since February 2018. But, before the penalty can be removed, Wells Fargo still has a few steps to complete. With Charlie Scharf at the helm as CEO, the banking institution must amend its plan according to federal requirements and approval, then get the Feds to approve its controls through a third party. Only then can the central bank vote to lift the limits.
Wells Fargo’s asset cap is to blame for its underperformance compared to its major rivals Bank of America and JPMorgan Chase. The two financial services banks, along with many others, have been able to work the pandemic to their advantage.
When Wells Fargo was asked to comment on the current situation, it only referred to a past statement: “The Federal Reserve will determine when the work to fulfill the requirements of the consent order is done to their satisfaction. We are focused on doing the work. We maintain strong levels of liquidity and capital, and we are committed to using our financial strength to help support the U.S. economy and our clients while operating in compliance with the asset cap.”