- The Federal Reserve will “temporarily and narrowly” ease its balance sheet restriction against Wells Fargo to allow the bank to provide additional emergency lending to small businesses, according to a Wednesday statement.
- The change only bolsters the bank’s ability to lend through the Paycheck Protection Program and the Fed’s upcoming Main Street Lending Program.
- Wells Fargo announced Tuesday it reached the $US10 billion lending cap due to the Fed’s restrictions and couldn’t continue loan issuance through the coronavirus relief programs.
- All benefits made through the emergency loans will be transferred to the Treasury or to non-profits that support small businesses, the central bank said.
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The Federal Reserve announced Wednesday it will temporarily relax growth restrictions placed on Wells Fargo to bolster small business lending amid the coronavirus shutdown.
“Extraordinary disruptions” caused by the pandemic forced the central bank to “narrowly modify” Wells Fargo’s balance sheet cap, according to a statement. The change will only expand the firm’s ability to issue loans through the Paycheck Protection Program and the Fed’s upcoming Main Street Lending Program.
Any profit made through the loans will be transferred to the Treasury or to non-profit organisations that aid small businesses, the Fed said.
Wells Fargo announced on Wednesday it stopped accepting small business loan applications, just two days after it opened its portal. The bank said it reached its $US10 billion distribution limit due to the Fed’s restriction, and that the applications received on April 4 and April 5 alone were enough to reach the threshold.
Technical issues plagued firms applying for the loans at other banks. Only Bank of America and JPMorgan Chase were able to accept loan applications on April 3, the day PPP launched.
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The Fed’s growth restriction was put in place after Wells Fargo opened millions of fraudulent accounts on behalf of clients without their approval. The scandal led to the resignation of CEO John Stumpf, a Senate investigation, and several settlements between the firm and clients. Wells Fargo was barred from expanding its nearly $US2 trillion balance sheet until overhauling its internal processes to a level approved of by the Fed board.
“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.
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