Federal Reserve Will Lift Asset Cap On Wells Fargo For Small Business Stimulus Loans

(Updated 12:43 p.m. ET, April 8, 2020)

Topline: The Federal Reserve will allow Wells Fargo WFC to temporarily exceed the asset cap that it had imposed on the bank in 2018 in order to allow it to participate in the emergency small business stimulus loan program.

• The Fed imposed the asset cap on Wells Fargo after it was revealed that the bank had opened millions of fake accounts for customers without their knowledge or permission.
• “Due to the extraordinary disruptions from the coronavirus, the Federal Reserve Board on Wednesday announced that it will temporarily and narrowly modify the growth restriction on Wells Fargo so that it can provide additional support to small businesses,” the Fed said in a statement.
• “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,” it added.
• Wells Fargo will only be allowed to exceed the cap to make loans as part of the Paycheck Protection Program under the CARES Act and as part of the Fed’s forthcoming Main Street Lending Program.
• Under the order, the bank will be required to return any proceeds it gets from the two programs to the Treasury or to non-profits that support small businesses. 
• On Monday, Wells Fargo said it would focus its lending on nonprofits and small businesses with fewer than 50 employees (though the Paycheck Protection Program as a whole includes companies with fewer than 500 employees), citing Fed the asset cap restrictions on its balance sheet capacity; the bank said it already had enough applications to exceed its previous capacity of $10 billion to lend.
• As the PPP gets underway following a chaotic launch, banks are already reporting surging demand from businesses struggling to stay afloat during the coronavirus crisis.

Key background: The Small Business Administration’s Paycheck Protection Program is a key part of the economic stimulus package that allocates $349 billion for small businesses to access forgivable loans for payroll and overhead. The program will offer loans of up to $10 million at 1% interest to companies and nonprofits with fewer than 500 workers so they can cover two months of payroll and overhead expenses. If the borrower retains workers and doesn’t cut their wages, the government will forgive most or all of the loan and repay bank lenders.