Wells Fargo has been temporarily banned by federal regulators from establishing foreign branches and acquiring non-bank entities.
The troubled Wall Street behemoth was slapped with the penalties under the Dodd-Frank Act, for failing to submit adequate bankruptcy resolution plans–for the second time this year.
If Wells does not produce sufficient plans by the end of March 2017, the ban will be extended and the bank will be subject to caps on its non-bank and broker-deal assets—limiting the firm to the amount it owned at the end of September 2016.
The bank may then be somewhat broken up–“forced to divest certain assets or corporations,” in the words of regulators—if it has not formulated a proper resolution plan by December 2018.
Wells was one of five “systemically important financial institutions” (SIFI) ordered in April to resubmit the plans–so-called “living wills.” Outlines submitted by the other four–JP Morgan, Bank of America, Bank of New York Mellon, and State Street–were deemed adequate this week by federal officials.
Reasons for the shortcomings of Wells’ living will were laid out in a letter sent on Tuesday to the bank from officials at the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC). None were related to the recent account fabrications scandal, when the bank was found by federal regulators to have opened more than two million accounts in customers’ names, without the proper authorization.
The FDIC and Fed deemed the bank’s resolution plans insufficient, officials from the two agencies said, because Wells failed to properly formulate them. Bankruptcy plans resubmitted in October by the bank did not enumerate a “clear, actionable” approach to an abrupt winding-up, Fed and FDIC officials said.
In September, Wells Fargo was fined $185 million by regulators, including the Consumer Financial Protection Bureau, for the scheme, which was found to have stretched from 2011 until 2015. The matter remains under investigation by the Justice Department, the Securities and Exchange Commission, and Congress.
This week, it was revealed that unauthorized customer sign-ups might have also been a feature of Wells’ insurance operations—a development that prompted Sen. Elizabeth Warren (D-Mass.) and Rep. Elijah Cummings (D-Md.) to announce they would be probing the matter.
“We need a complete picture of how far Wells Fargo’s abusive business practices stretch in order to hold executives accountable and prevent such fraud from ever happening again,” the two lawmakers said. Cummings is the ranking Democrat on the House Government Oversight Committee.
The system of SIFIs and living wills was established by Congress and the Obama administration in 2010, as part of the Dodd-Frank financial reform act. With both houses of Congress now in Republican control and Donald Trump set to take the White House in January, however, the future of Dodd-Frank mechanisms and institutions look uncertain.
