Fed adds harsher penalties for Wells

The Federal Reserve has imposed unusually harsh penalties on Wells Fargo, punishing it for years of misconduct and barring it from future growth until the San Francisco bank fixes its problems.

The central bank blasted Wells Fargo’s board for failing to oversee the bank, and it announced that the company will replace four members of its 16-person board by the end of the year.

The Fed’s punishment, a forceful intervention by the government into the affairs of a large company, means that one of the country’s largest and most powerful financial institutions will be unable to keep pace with its fast-growing rivals.

The move, announced late on Janet Yellen’s last working day as the central bank’s chairwoman, is all the more extraordinary because it comes at a time when federal banking regulators in the Trump administration are working to relax rules that were imposed in the years after the financial crisis.

The decision by the Fed follows revelations over the last two years that the bank had deceived its customers by opening dummy accounts in their names and forcing some to take out unnecessary auto insurance.

The Fed, which oversees the

bank, said in its announcement that Wells Fargo needs to overhaul its risk management and strengthen its board oversight as well.

“Until the firm makes sufficient improvements, it will be restricted from growing any larger than its total asset size as of the end of 2017” — a reported $1.95 trillion.

The Fed’s regulators have routinely penalized banks for misconduct, but it has rarely imposed strict limits on a major bank’s growth.

Wells Fargo CEO Tim Sloan said the moves did not affect the bank’s financial condition. “We take this order seriously and are focused on addressing all of the Federal Reserve’s concerns,” he said, adding that the Fed’s actions related to old conduct that the bank was already taking steps to fix.

The company said it would submit a plan to the Fed within 60 days for improving its board oversight and risk management practices.

The Fed’s action Friday stunned industry observers and sent Wells Fargo’s shares down more than 6 percent in after-hours trading.