For seven years, the bank was forbidden to grow as punishment for misconduct including creating fraudulent bank accounts and mistakenly seizing homes.
In early 2018, the Federal Reserve hit Wells Fargo with an unprecedented penalty for a yearslong record of misconduct: an asset cap that prevented the bank from growing.
On Tuesday, the Fed lifted that restriction. Wells Fargo has improved its internal governance and risk management enough to be released from its fetters, the regulator said.
The end of the asset cap reflects the bank’s “focused management leadership, strong board oversight and strict supervision,” said Michael S. Barr, a Fed governor who recently ended his service as the board’s vice chair for supervision. He said the three improvements “will need to continue for the firm to have a sustainable approach.”
Wells Fargo, based in San Francisco, hailed the end of a sanction that has shadowed the bank for more than seven years. Charles W. Scharf, the bank’s chief executive, called it “a pivotal milestone” in the company’s transformation.
“We are a different and far stronger company today because of the work we’ve done,” he said.
Wells Fargo said it would grant nearly all of its 215,000 full-time workers an award valued at $2,000. For most, the prize will come in the form of a restricted stock grant, which the company described as a way to give its workers “an opportunity to own a part of Wells Fargo and hopefully benefit from our future success.”
Mr. Scharf took on the top job at Wells Fargo in 2019, after the bank’s series of scandals toppled two chief executives. In 2016, federal regulators and local officials in California revealed that the bank’s employees had for years created bank accounts for unwitting customers, without their consent, to meet aggressive sales goals.
That discovery was followed by others, including mistakes that led to improper home foreclosures and auto repossessions. The bank paid billions of dollars in fines and billions more in refunds to customers it had harmed. One former top executive — Carrie L. Tolstedt, who served for years as Wells Fargo’s head of retail banking — faced criminal charges from the Justice Department. Through a plea deal, she avoided a prison sentence.
The asset cap prevented Wells Fargo from keeping up with rivals. Over the course of the sanction, its ranking among the largest U.S. banks fell from third to fourth, with assets of around $1.9 billion.
The bank will now be able to expand its lending, increase its deposits and potentially acquire other financial providers. Its stock price rose about 3.7 percent in after-hours trading after the Fed announcement.
Wells Fargo was the first bank to face such a stiff penalty from federal bank regulators, but it’s no longer the only one. Last year, the Office of the Comptroller of the Currency imposed an asset cap on TD Bank for violating anti-money-laundering laws.
“No one thought it would last this long,” Ian Katz, an analyst at Capital Alpha Partners, said of the Wells Fargo asset cap. Its removal “signals both the bank’s progress and the Fed’s increasingly bank-friendly mood.”