Feds modify growth restriction on Wells Fargo to support small business

Marco Green
April 9, 2020

On April 8, the Federal Reserve Board-the main governing body of the Federal Reserve System-announced that due to intense interest in the emergency small business loan program it would temporarily modify the restrictions it had imposed on Wells Fargo that caused the bank to institute the cap.

Since the program launched on Friday, most US banks are processing loans only for existing clients. On Twitter, the bank is telling would-be applicants that it is no longer accepting new loan requests due to the "overwhelming volume of requests we've already received", and is referring people to the Small Business Administration for additional resources.

But the Fed indicated Wells Fargo has more work to do before it's removed permanently.

The Paycheck Protection Program may not protect almost enough paychecks. Borrowers who don't lay off workers in the next eight weeks will have their loans forgiven, along with the interest.

On Sunday, the bank said that it wouldn't accept any more applications for federal small-business stimulus loans, as it would encroach on the growth cap it's operated under since 2018, a effect of the bank's fake-account scandal. The effort presumably allows Wells Fargo to provide additional lending support to small businesses. Yet Wells Fargo's limited participation could hamper the program, which has had had a rocky start.

As of Sunday evening, Citibank was still not accepting loan applications.

The Fed said in a Wednesday order that Wells Fargo will be allowed to exclude loans through the Paycheck Protection Program and forthcoming mid-size business lending program from counting towards the bank's asset cap. The firm will therefore focus on helping nonprofits and businesses with fewer than 50 employees. Wells Fargo also said it will donate any profits it makes from the program to charity.

The change only bolsters the bank's ability to lend through the Paycheck Protection Program and the Fed's upcoming Main Street Lending Program.

Why it matters: One of the nation's biggest lenders said the Fed's asset cap prevented it from lending more to struggling small businesses as part of the government's aid package.

Between the lines: When Wells Fargo's newest CEO, Charlie Scharf, took the helm past year, one of his goals was to work with regulators to get the bank's growth cap removed. "We are committed to helping our customers during these unprecedented and challenging times, but are restricted in our ability to serve as many customers as we would like under the PPP".

Small businesses, which employ about half of USA private sector employees, have been dramatically hurt by the coronavirus pandemic as states have halted non-essential businesses and consumers curb their spending.

Over the weekend, Bank of America said it had received 185,000 loan applications on the first day and a half of the program, seeking a total of $30 billion.

Other reports by Click Lancashire

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