Feds sanction Wells Fargo after rejecting 'living will'

Feds sanction Wells Fargo after rejecting 'living will'
© Greg Nash

Regulators are rejecting Wells Fargo's second attempt to create a "living will," a decision that will subject the beleaguered bank to tighter restrictions on its activity.

The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) announced their decision on Tuesday.

Wells Fargo and its subsidiaries are now banned from opening a foreign bank or branch, or from acquiring a non-bank subsidiary until it submits an approved plan. Wells Fargo is also banned from increasing its total non-bank and broker dealer assets beyond their September 30-level.

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Large “systemically important financial institutions” are mandated by the Dodd-Frank Wall Street regulation law to submit “resolution plans” for Fed and FDIC approval. These plans, also known as living wills, outline how banks would quickly dismantle themselves and sell off their assets without triggering a financial crisis if they failed.

Wells Fargo was one of five big banks whose plans failed to earn federal approval in April. Wells Fargo, Bank of America, Bank of New York Mellon, JP Morgan Chase and State Street were told in April to fix their plans by October 1.

Wells Fargo was the only bank among those to fail again to win approval in October. The regulators said Wells Fargo failed to outline how its legal structure could be taken apart in an orderly way, and how critical services would be maintained during a dismantlement.

“In light of the nature of the deficiencies and the resolvability risks posed by Wells Fargo's failure to remedy them, the agencies have jointly determined to impose restrictions on the growth of international and non-bank activities of Wells Fargo and its subsidiaries,” said the regulators in a Tuesday release.

Wells Fargo has until March 31, 2017 to submit a new plan. The bank could be forced to sell assets if the new plan isn’t approved.

Tuesday’s rejection is Wells Fargo’s latest blow in a difficult year. The bank is facing several federal and state investigations after employees opened more than 2 million accounts for customers without their approval.

Then-CEO John Stumpf retired soon after the Consumer Financial Protection Bureau announced a record $185 million fine against Wells Fargo in September, and lawmakers suggested Stumpf should face criminal charges.

Wells Fargo is also taking heat for allegedly opening insurance plans with Prudential Financial without customers' knowledge.