(Updated at 12:43 p.m. ET on April 8, 2020)
Top line: Federal Reserve clears Wells Fargo
- The Fed imposed an asset cap on Wells Fargo after it was revealed the bank opened millions of fake accounts for customers without their knowledge or permission.
- “Due to the extraordinary disruption from the coronavirus, the Federal Reserve announced on Wednesday that it will temporarily and tightly modify Wells Fargo’s growth restriction so that it can provide additional support to small businesses,” the Fed said in a statement. communicated.
- “The Council continues to hold the company accountable for successfully resolving the widespread blackouts that caused damage to consumers identified in this action and for having fulfilled the requirements of the agreement,” he said. he adds.
- Wells Fargo will only be allowed to exceed the limit for making loans under the Paycheck Protection Program under the CARES Act and as part of the Fed’s upcoming Main Street loan program.
- Under the order, the bank will be required to return any proceeds from both programs to the Treasury or to nonprofits that support small businesses.
- On Monday, Wells Fargo said it would focus its lending on nonprofits and small businesses with fewer than 50 employees (although the paycheck protection program as a whole includes businesses with fewer than 500 employees. ), citing the Fed’s asset cap restrictions on its balance sheet capacity; the bank said it already had enough requests to exceed its previous lending capacity of $ 10 billion.
- As the PPP kicks off after a chaotic launch, banks are already reporting increased demand from companies struggling to stay afloat during the coronavirus crisis.
Key context: The Small Business Administration’s paycheck protection program is a key part of the economic stimulus package that allocates $ 349 billion to small businesses to access forgivable loans for payroll and overhead. The program will provide loans of up to $ 10 million at 1% interest to businesses and nonprofits with fewer than 500 workers so they can cover two months of wages and overhead. If the borrower keeps the workers and does not reduce their wages, the government will cancel most or all of the loan and reimburse the bank lenders.