Wells Fargo's Third Time a Charm as It Clears Living Will

(Bloomberg) -- Wells Fargo & Co. will escape further restrictions on its business after U.S. regulators ruled that the lender’s revised plan for how it could be safely unwound in a crisis is good enough -- for now.

The Federal Reserve and Federal Deposit Insurance Corp. said Monday that Wells Fargo had addressed concerns they raised after the bank became the first to have its so-called living will found “not credible” two times running. The finding had triggered a lengthy review process in which the regulators started imposing constraints on the San Francisco-based lender that could have led to its breakup.

In a letter to Wells Fargo Chief Executive Officer Timothy Sloan, the Fed and FDIC said the bank’s most recent filing “adequately remedies the remaining deficiencies.” That means the regulators will lift some limits they’d placed on the firm’s growth and activities, putting the bank back on equal footing with its Wall Street competitors.

The living wills represent one of the most potent powers bestowed on the government by the 2010 Dodd-Frank Act. Big banks have to write plans that can run into thousands of pages, detailing how they can be taken quickly and safely through bankruptcy. Wells Fargo first failed in April 2016 alongside other major banks including JPMorgan Chase & Co. and Bank of America Corp. In December, Wells Fargo was the only bank to come up short again after the banks filed revised submissions.

Account Scandal

Last year’s rejections came as Wells Fargo struggled with a scandal over its employees setting up as many as 2 million accounts without customers’ approval. The lender also got a harsh assessment in March of how it serves communities, and it was sanctioned in September for improperly repossessing cars owned by military members.

Wells Fargo had to deliver its most recent resolution plan to the Fed and FDIC by March 31. The bank had been waiting since then to hear whether it did enough to fix problems with how it organized its various “legal entities” and how it shares services among various units. The process now starts all over again, with Wells Fargo required to submit a 2017 version of its living will by July 1.

“We are pleased with the agencies’ findings and remain committed to sound resolution planning and preparedness as we finalize our July 2017 submission,” Wells Fargo said in a statement.

Wells Fargo shares jumped on the announcement, advancing 0.5 percent to $53.90 in extended trading at 5:05 p.m. in New York. The stock had climbed 1.2 percent during the regular session, paring its decline for the year to 2.6 percent.

Annual Meeting

Monday’s living-will announcement comes the day before Wells Fargo’s annual shareholder meeting, giving management some positive news as it confronts investors who’ve been frustrated by the bank’s recent setbacks.

The clearance of Well Fargo’s living will marks the first time the Fed and FDIC have both been satisfied with all the big banks’ plans, marking a potential turning point for what has been a torturous process for financial firms and the government officials overseeing them.

Bankers generally believe that the regulators President Donald Trump appoints to agencies will ease of some of the toughest demands on the industry, including living wills and the Fed’s annual stress tests of whether lenders can endure a severe economic slump.