Feds slap curbs on Wells Fargo
WASHINGTON — Federal regulators have determined that Wells Fargo has not done enough to patch the holes in the plan it would deploy if it fell into bankruptcy.
As a result, the Federal Reserve and the Federal Deposit Insurance Corp. on Tuesday slapped restrictions on the bank, barring it from setting up new international banking businesses or buying any nonbank subsidiaries until it fixes the issues.
It’s the latest blow to San Francisco-based Wells Fargo, which has been rocked by a scandal over its sales practices that triggered public outrage, brought federal and state investigations, and led to the resignation of its CEO.
The regulators’ action Tuesday concerned the bank’s so-called “living will” plan. Those are plans that outline how banks would reshape themselves in the event of failure. The government exercise is aimed at avoiding a repeat of the taxpayer bailouts of “too-big-to-fail” banks during the 2008 financial crisis.
It’s unrelated to the scandal that stemmed from Wells Fargo employees opening of millions of unauthorized accounts in order to meet aggressive sales targets.
The eight biggest U.S. banks were required to submit disaster plans. Five were issued failing grades in April. Since then, Bank of America, JPMorgan Chase, Bank of New York Mellon and State Street managed to adequately fix the problems, the regulators said Tuesday.
Only Wells Fargo failed to get a passing grade.
The restrictions on Wells Fargo will remain in place until the deficiencies are corrected, the regulators said. If the bank doesn’t meet the goal by March 31, an additional curb will be imposed limiting the size of its nonbank and brokerage assets to levels in effect on Sept. 30.
If the plan doesn’t pass muster within two years, Wells Fargo may be required to sell off some assets or operations to enable its orderly unwinding in bankruptcy proceedings.