The US Federal Reserve has removed a long-standing asset cap on Wells Fargo & Co., ending one of the harshest penalties imposed on a major American bank in recent history.
The cap, set at $1.95 trillion, had been in place since 2018 following the company’s fake-accounts scandal that drew widespread criticism and regulatory action.
In a statement issued late Tuesday, the Fed said Wells Fargo had made “substantial progress” in correcting the issues that prompted the cap.
The bank’s stock rose by nearly 4% in premarket trading on Wednesday, as investors welcomed the move as a major de-risking event and a sign of renewed growth prospects.
Scharf’s steady leadership pays off
The decision represents a significant victory for CEO Charlie Scharf, who took over in 2019 with a blunt diagnosis: Wells Fargo’s culture was broken.
At the time, the bank was still reeling from revelations that employees had opened millions of unauthorized customer accounts to meet aggressive sales targets.
The scandal not only damaged Wells Fargo’s reputation but also triggered billions of dollars in fines and a freeze on growth that allowed competitors to widen the gap.
Scharf, 60, led a wide-ranging overhaul of the company’s governance, risk management, and business structure.
“We have transformed the management team and how we run the company,” Scharf said in a statement on Tuesday.
We are excited to continue to move forward with plans to further increase returns and growth in a deliberate manner supported by the processes and cultural changes we have made.
He also acknowledged the efforts of the bank’s 215,000 employees, calling the turnaround one of the most ambitious in the sector.
Deposit side, trading to gain the most
Analysts say the removal of the cap could serve as a launchpad for renewed growth, particularly in areas such as commercial deposits and trading.
“This is a potential turning point in Wells Fargo’s growth trajectory,” noted TD Cowen in a research report.
“We are far more excited about what this action could mean for longer-term revenue growth.”
Keith Horowitz, banking analyst at Citigroup, emphasized that the cap had been particularly restrictive on the deposit side.
“We believe that the most significant benefit of the removal of the asset cap will be on the deposit side as WFC management has noted there have been commercial deposits they’ve had to turn away due to the asset cap,” he said.
He added that trading, which has grown significantly despite the cap, now has more room to expand.
Trading fees grew from $1 billion in 2019 to about $5 billion in 2024, and Horowitz said removal of the cap can provide an “additional tailwind” to the underlying momentum in trading fees.
Horowitz cautioned, however, that the removal of the cap may not result in an immediate jump in lending.
The asset cap has not been the main limiting factor in terms of loan growth. Instead, we believe softer loan demand resulting from an uncertain macro environment to start the year has been a greater limiter on growth.
Reputational reset to help them grow their balance sheet
The constraints of the asset cap also led Wells Fargo to exit some business lines, including its asset management unit.
Christopher Wolfe, Managing Director of North American Banks at Fitch Ratings, said the cap forced the bank to be highly selective.
With the asset cap lifted, Wells will not have its hands tied behind their back. It has a very strong franchise and the asset cap was holding it back.
Wolfe credited the bank’s progress to significant leadership changes under Scharf’s tenure. “While it took time to get there, the bank can now operate normally.”
Portfolio manager Mac Sykes of Gabelli Funds said the move removes a longstanding “regulatory overhang” and offers a reputational reset.
“It provides them a reputational boost which is helpful, provides more and different capital allocation opportunities and allows them to grow their balance sheet,” he said.
Bullish for the stock, and the economy
The removal of such a high-profile regulatory constraint is also seen as a signal of broader market health.
“This is bullish for the stock and for the market because whenever you have a situation where stress is reduced or taken away from the system, especially for one of the largest banks in the country, that bodes well for the market and for the economy,” said Adam Sarhan, CEO of 50 Park Investments.
Sarhan said that the fact that the Fed is no longer worried about too much risk shows that the bank is in strong hands, it is operating well that it has earned the right to get those restraints removed which adds confidence.
“From an investing standpoint, that bodes well for the stock and for the market. All things being well, a healthier financial system is good for the market and good for the economy.”
While challenges remain — including lingering scrutiny from other regulators and ongoing competition from larger rivals like JPMorgan Chase and Bank of America — the lifting of the asset cap marks a definitive turning point for Wells Fargo.
For the first time in years, the bank is free to grow without regulatory shackles — and investors are watching closely to see what comes next.
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