Wells Fargo would damage financial markets if it were pushed to bankruptcy, U.S. regulators said on Tuesday as they imposed restrictions on the bank's business.
The nation's largest banks must offer regulators "living wills" that outline how they would be unwound in an orderly way. Wells Fargo was one of five banks to fail an initial assessment in April.
On Tuesday, regulators determined that Wells Fargo's living will still fell short and that the San Francisco-based bank would be sanctioned, the Federal Deposit Insurance Corporation said in a statement.
Specifically, the bank may not establish international bank entities or acquire nonbank subsidiaries, the FDIC said. Wells Fargo may submit an amended living will by March 31 and regulators could lift restrictions then.
"We believe we will be able to address the concerns raised today in the March 2017 revised submission," bank officials said in a statement.
Four other banks passed muster after failing the initial assessment of living wills in April. Those banks are JPMorgan Chase, Bank of America, State Street Corp. and Bank of New York Mellon.
Living wills were conceived in the wake of the 2008 financial crisis when the downfall of several Wall Street banks sent shock waves through global markets.
U.S. taxpayers had to prop up banks that were deemed "too big to fail" and Congress vowed that such a rescue would not happen again in the future.
Now that it has failed to satisfy regulators, Wells Fargo is on a regulatory path that could end with the bank being ordered to shrink in two years.
However, the lender will have several chances to harden its business in the meantime and avoid such a measure.
