EDITORIAL: Punishing Wells Fargo, not its shareholders

March 03--The trouble with banks that are too big to fail is that they're also too big to fine.

Wells Fargo agreed to pay $185 million in 2016 to settle investigations into its creation of millions of unauthorized customer accounts, a penalty that soon seemed inadequate.

The San Francisco-based giant has since admitted to other questionable practices, including charging auto-loan customers for unnecessary insurance and hitting mortgage borrowers with improper fees.

In February, outgoing Federal Reserve Chair Janet Yellen announced a consent order under which Wells Fargo agreed to submit written plans to the Fed within 60 days explaining how it would improve its risk management and oversight. The order further required an independent review by Sept. 30 to evaluate how the bank is implementing the Fed-approved plans and removing some board members.

Yellen also announced an unprecedented penalty -- a cap on the bank's growth. The consent order prohibited Wells Fargo from increasing its total assets above $1.95 trillion, their level at the end of 2017, until the Fed determines that the bank has "sufficiently" improved its "governance and controls."

The new chairman of the Federal Reserve, Jerome H. Powell, told the Senate Banking Committee on Thursday that the Fed will not wait for Wells Fargo to fully implement its reform plans before lifting the growth cap, as long as its plans have been approved and implementation has begun.

Sen. Elizabeth Warren complained that this is too lax a standard, but Powell is right.

The chairman and CEO at the time of the sham-account scandal, John Stumpf, has been replaced. Board member and former chairman Stephen Sanger and two other longtime board members retired on Jan. 1, and the bank said three more board members will step down in April.

The housecleaning is well justified, but the cap on assets is a sledgehammer that risks collateral damage to shareholders and employees if the bank is forced to make long-term business decisions in order to hit an arbitrary number. The Fed has made its point. Wells' board must improve its oversight and governance practices. The growth cap should be lifted as soon as the bank has demonstrated that it has a serious plan in place and is acting on it.

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