Fed lets Wells Fargo out of the penalty box early to help small businesses

Photo | Contributed A Wells Fargo branch.

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By Matt Egan, CNN Business

The Federal Reserve is temporarily letting Wells Fargo out of the penalty box, freeing the troubled bank to aggressively lend to small businesses struggling to survive the coronavirus crisis.

The Fed said in a statement Wednesday it is lifting growth restrictions imposed on Wells Fargo in 2018 because of the "extraordinary disruptions from the coronavirus."

The change will allow Wells Fargo to participate only in programs designed to help companies harmed by the health crisis, including a forgivable loan program for small businesses. And the bank is being required to turn over profits from these programs to the US Treasury Department or to nonprofits approved by the Fed or to the US Treasury.

Even though the so-called asset cap was imposed to punish Wells Fargo for a series of scandals, some say those tough sanctions were unintentionally penalizing small businesses.

Wells Fargo even recently suggested the asset cap was limiting its ability to participate in the forgivable loan program, known as the Paycheck Protection Program.

"The change today provides additional support to small businesses hurt by the economic effects of the coronavirus," the Fed statement said.

Wells Fargo shares hit session highs on the news.