Wells Fargo’s growth cap eased so bank can help more businesses

The Federal Reserve made another move to try to expand small-business owners’ access to emergency loans Wednesday when it temporarily lifted a growth restriction it had imposed on Wells Fargo two years ago after the bank’s fake-account scandal.

The Fed said the move was a response to “extraordinary disruptions from the coronavirus,” which has caused a widespread economic shutdown that resulted in the loss of millions of jobs. The federal government is trying to keep small businesses afloat through a $349 billion emergency relief program that provides forgivable loans they can use to pay their employees, rents and mortgages.

Banks are supposed to make the loans and later recoup the funds from the government, but the program has gotten off to a rocky start.

“This action by the Federal Reserve will enable Wells Fargo to provide additional relief for our customers and communities,” said Charles Scharf, the bank’s chief executive.

He added that the bank had received 170,000 loan requests in the program’s first two days.

Wells Fargo, the country’s fourth-largest bank, said Sunday that its balance sheet had reached a Fed-imposed growth limit of $1.95 trillion. That cap was not to be lifted until Wells Fargo’s leaders could demonstrate that the bank was being run in a way that no longer put its customers at risk. Regulators said that while the necessary changes had not yet been made, it was temporarily easing the limit so the bank could participate fully in the emergency loan program.

Small businesses have been devastated by the economic shutdown and are scrambling to get funds through the days-old paycheck protection program. But many have been unable to tap the money, as demand overwhelms lenders and aging technology at the Small Business Administration slows down the processing of loan applications.

Early this week, Wells Fargo told scores of would-be borrowers that it could not process their requests and advised them to look for another bank that was participating in the program.

Wells Fargo’s small-business banking operation accounts for a fifth of the U.S. market. The growth cap limited lending to a volume of just $10 billion, well under the amount the bank was capable of doing.

The change allows it to keep lending, but only under the smallbusiness program and a second facility, the Main Street lending program, that the government is setting up for medium-size businesses.