Other than the Great Recession and the bank failures of last year, little trouble in the recent banking era were more scandalous than Wells Fargohis (WFC 0.04%) the infamous fake account scandal.

Bank employees opened millions of credit cards and bank accounts without customers’ consent. Since the scandal broke in 2016, Wells Fargo has dealt with consent orders, paid billions in fines and done its best to overcome a reputational nightmare.

But the bank did not waive an asset cap imposed by the Federal Reserve, which was the costliest penalty of all. Still, Wells Fargo has made significant progress cleaning house, and a Trump presidency that should bring a friendlier environment for banks could pave the way to the finish line. Here’s why.

A nearly seven-year grind could be coming to an end

The Fed first imposed the asset cap on Wells Fargo in 2018, preventing the bank’s total assets from exceeding about $1.95 trillion.

A major way banks make money is by making loans and then collecting interest payments on those loans, so the more banks can grow their loan portfolios and balance sheets, the more money they can make in interest payments.

Wells Fargo is among the four largest banks in the US along with JPMorgan Chase, Bank of Americaand City Group. But the bank has lagged significantly behind its peers, with JPMorgan Chase now at $4.2 trillion in assets; even Citigroup, which has struggled with its own internal problems, has nearly $2.4 trillion.

In 2020, Bloomberg conducted an analysis and estimated that the asset cap cost Wells Fargo $4 billion in profit. If that was in 2020, I suspect the asset cap cost Wells Fargo at least $10 billion in earnings.

The bank hired chief executive Charles Scharf in late 2019 to fix the mess. Protégé Jamie Dimon is doing a good job so far. Scharf shed much of Wells Fargo’s expense base, exiting certain businesses to focus on its core U.S. franchise and ramping up higher-yielding businesses like credit cards and low-cap businesses like investment bank.

He also made significant progress on Wells Fargo’s numerous consent orders, including the asset cap. According to those orders, there are several key steps Wells Fargo must take to remove the asset cap:

• Submit plans to improve their operational and risk management program, as well as governance and oversight. Bloomberg reported that these plans were thousands of pages long.
• Get the plans approved by the Fed, which apparently took several tries.
• Adopt and implement the plans.
• Carry out two independent reviews of the plans.
• Submit third-party reviews to Fed.
• The Fed’s board of governors must vote to remove the asset cap.

Wells Fargo recently submitted these third-party reviews to the Fed, indicating that after nearly seven years, the bank has completed much of the necessary work. At a recent industry conference in early November, Wells Fargo management and analysts were upbeat about the removal of the asset cap.

A Trump administration should cross the finish line

I don’t think anyone expected the asset cap to last seven years and it could still stretch to eight years or more when all is said and done. Part of the reason was likely the Biden administration’s strict regulatory approach to the banking sector.

Over the past four years, bank regulators have pushed for tighter capital requirements, slowed approval timelines for bank mergers and acquisitions, and doled out their fair share of enforcement.

Recently, the Fed imposed an asset ceiling on TD BankU.S. operations after officials discovered that Chinese criminals had laundered millions of dollars in drug proceeds through the bank’s New York and New Jersey branches.

Wells Fargo isn’t out of the woods yet. The initial enforcement action states that the Fed may request additional review after the third-party review is submitted.

It is also unclear how the Fed board might vote. This is where the Trump administration could make a difference. Fed Chairman Jerome Powell’s term expires in 2026, and Trump will also have a chance to replace at least one Fed governor over the next four years.

So if Wells Fargo still faces the asset cap at that point, the Fed’s structure could become more bank-friendly. Finally, I believe the asset cap should be removed by next year or early 2026.

We’ve been wrong before, but the market believes the Trump administration should get the job done. Shares of Wells Fargo are up nearly 14% since the election, a huge move for a big bank stock. The writing seems to be on the wall.