WASHINGTON/NEW YORK: Wells Fargo & Co must keep a lid on its growth until the bank has hardened its risk management policies to prevent any further abuse of its customers, said Jerome Powell, chairman of the Federal Reserve.
In February, the Fed ordered Wells Fargo to freeze its balance sheet, keeping its assets below US$1.95 trillion, until it put new checks on senior managers and gave the board new powers to sniff out abuses.
"We do not intend to lift the asset cap until remedies to these issues have been adopted and implemented to our satisfaction," Powell wrote in a letter to U.S. Senator Elizabeth Warren seen by Reuters.
Wells Fargo has so far failed to satisfy the Fed and the bank is months behind schedule on submitting an acceptable reform plan, Reuters reported last week.
A bank representative did not immediately respond to a request for comment on Powell's letter. Wells Fargo executives have previously said that they expect the cap to be lifted during the first half of next year.
Warren, a Massachusetts Democrat, has been a vocal critic of Wells Fargo and its Chief Executive Tim Sloan. In October, Warren wrote a letter asking the regulator not to remove the asset cap until Sloan is removed, charging that Sloan was "deeply implicated" in the misdeeds of the past. Wells Fargo has called Sloan's 30-year tenure at the bank an asset and said he has the full support of its board.
On Monday, Warren faulted the bank for being late with its reform plan and said Sloan must go.
"Wells Fargo is already months behind," Warren said in a statement. "If the Fed is serious about changing the practices at Wells Fargo that have cost customers their homes or cars or credit scores, it must insist on new leadership at the bank."
The Wells Fargo sanctions were rooted in a sales practices scandal that broke open in 2016 when it was reported that employees had opened potentially millions of phony accounts in customers’ names without their permission. In his letter to Warren, Powell wrote that what happened inside the bank was "outrageous," but declined to say whether or not Sloan should continue to lead the bank.
Since the phony accounts scandal, Wells Fargo has said it found abuses in auto insurance, small business loans, mortgage lending and other business lines.
Once Wells Fargo has satisfied the terms of the February settlement, Powell wrote, the Fed board will decide whether or not the bank can grow.
"The decision about terminating the asset growth restriction imposed on Wells Fargo will be made by a vote of the Board," Powell wrote in the Nov. 28 letter.
(Reporting by Patrick Rucker in Washington and Imani Moise in New York; Editing by Neal Templin and Phil Berlowitz)