Wells Fargo & Co (NYSE:WFC) have to seek a formal approval in a vote taken by the Federal Reserve Board of Governors to have its growth restrictions lifted. This was announced by Jerome H. Powell, the chairman of Fed. This move is expected to eat into the company’s profits.
Powell announced his decision in a letter to Sen. Elizabeth Warren (D-Mass.), who has been pushing for a vote by the board as opposed to staff endorsement. By having a board vote, the Fed could be held accountable by the public and Congress for its decision on whether to lift the penalties imposed on the bank for its unauthorized-accounts scandal plus other consumer abuses.
Timothy Sloan, the Chief Executive of Wells Fargo had separately told investors that he expected the restrictions to continue into 2019. The company was slapped with penalties restricting its asset growth to $1.95 trillion.
While appearing before the Senate Banking Committee hearing in March, Warren had requested Powell to hold a formal vote on lifting the cap. This was followed by a letter she sent in April.
While commenting on Powell’s decision, Warren said that she has happy that the Fed Board of Directors had changed course and decided to vote on whether to lift the ban as opposed to delegating. She noted that Fed must enforce its orders so as to send a message to Wells Fargo that it is serious.
Last month US president Donald Trump appointed economist Richard Clarida and Michelle Bowman, a state banking regulator to fill the vacant seats on the Fed board. Several questions are likely to arise on how the board will handle lifting of the restrictions imposed on the bank.
Jaret Seiberg, an analyst at Cowen & Co, a brokerage and investment bank in a research note said that the decision taken by Powell to have a formal vote implies that chances are very high that the restrictions will remain in place up to the second quarter of 2019. He added that the period of stay of the restrictions could be prolonged if more problems come up.