The Fed temporarily eases restrictions on Wells Fargo to boost lending amid 'extraordinary disruptions'

Photo by Mark Wilson/Getty ImagesWASHINGTON, DC – SEPTEMBER 26: Federal Reserve Board Chairman Jerome Powell arrives for a news conference on September 26, 2018 in Washington, DC. The Fed raised short-term interest rates by a quarter percentage point as expected today, with market watchers expecting one more increase this year and three more in 2019.
  • 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.
  • Visit the Business Insider homepage for more stories.

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.

Read more:
C.T. Fitzpatrick has ranked in the top 1% of value managers since the financial crisis. He shares his 4-part strategy for dominating a coronavirus-hit market – and names 6 companies that will benefit from the fallout.

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.

Now read more markets coverage from Markets Insider and Business Insider:

Hedge fund titan Crispin Odey says the coronavirus meltdown will most closely resemble the Great Depression

‘I no longer feel defence should be favoured’: Billionaire investor Howard Marks urges clients to take advantage of bargains in the market

Real-estate brokerage Redfin is furloughing 41% of agents until September, painting a dire picture for how long the US housing market will take to bounce back

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.