Wells Fargo shares jump after Fed reportedly approves bank’s overhaul plan

Wells Fargo shares popped Wednesday after the Federal Reserve reportedly signaled that it will accept the firm’s plan to overhaul its governance functions, a key step for the bank’s effort to be released from a regulatory restriction.

Wells Fargo climbed 5.7% in trading.

The Fed has privately signaled that it would accept the bank’s proposal, Bloomberg reported Wednesday, which removes a hurdle in eventually removing an asset cap imposed on the bank in Feb. 2018.

However, several steps remain before the penalty is lifted: Wells Fargo, run by CEO Charlie Scharf since Oct. 2019, has to implement its plan to the Fed’s liking, then get its controls approved by an outside party before the Fed will vote to lift the cap.

Wells Fargo is limited to the balance sheet size it had in late 2017, at $1.95 trillion, a rare penalty in the banking world enacted by the Fed after the bank’s multitude of scandals tied to internal controls.

That asset cap has been a key reason that Wells Fargo has underperformed rivals including JPMorgan Chase and Bank of America, which have been more able to take advantage of opportunities during the pandemic.