Fed Eases Wells Fargo Capital Rule to Enable More Small-Business Lending

Wells Fargo  (WFC) - Get Report shares rose as the Federal Reserve said it was easing its capital restrictions on the San Francisco bank so that it could make more small-business loans.

“Due to the extraordinary disruptions from the coronavirus,” the Fed said in a statement, “it will temporarily and narrowly modify the growth restriction on Wells Fargo so that it can provide additional support to small businesses.”

Still, the change allows the banking major to make only additional small-business loans as part of the Paycheck Protection Program, or PPP, and the Federal Reserve's forthcoming Main Street Lending Program.

The PPP program got off to a rocky start last weekend, and one problem was that Wells Fargo had to cut off its lending at $10 billion because of the asset restraint.

In February 2018, the Fed prohibited the bank from lifting its assets beyond their year-end 2017 level until it implemented certain reforms. 

The regulator acted after Wells Fargo was found to have defrauded customers through techniques such as establishing unauthorized accounts.

The PPP and Main Street loans won’t count against the asset cap, the Fed said.

As of March, Wells Fargo had capacity for $384 billion of additional lending based on its capital as of Dec. 31, according to Bloomberg. That’s the highest figure for all the country’s eight biggest lenders.

At last check, Wells Fargo shares traded at $29.97, up 4.2%. That compares to a 2.48% gain for the S&P 500. 

Wells Fargo stock has declined 43% over the past three months.