Wells Fargo failed its 'living will' test a second time and is on the brink of sanctions

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Wells Fargo

REUTERS/Noah Berger

Wells Fargo's plan for how it would resolve its business in the event of a crisis was again rejected by regulators on Tuesday, putting it closer to serious sanctions under the Dodd-Frank Act.

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Both the Federal Reserve and the Federal Deposit Insurance Corporation rejected Wells' so-called living will for a second time, even after the bank made adjustments to the plan.

The original draft was rejected in April.

The regulators found that two of the three areas that had been cited for "deficiencies" in the original plan had not been fixed. Due to the failure, the bank will now be restricted in its ability to perform international operations and acquire certain types of businesses.

"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 a press release from the Fed. "In particular, Wells Fargo is prohibited from establishing international bank entities or acquiring any non-bank subsidiary."

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The failure comes just two months after Wells was hit by a fake accounts scandal that led to a Congressional investigation and the departure of its then-CEO John Stumpf.

If the bank does not resolve the issues by March 31, 2017, it will be subject to more sanctions that will "limit the size of the firm's non-bank and broker-dealer assets" at the amount it held on September 30, 2016.

Four other banks that had initially failed - State Street, Bank of America, Bank of New York Mellon, and JPMorgan Chase - had their plans approved by regulators.

The living wills are designed to make banks evaluate how they would wind down their business in the event of another financial crisis without hurting the broader economy.

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