Last week, the Fed revealed its decision to penalize Wells Fargo (WFC  ) following revelations that the bank has deceived its customers over the past two years. This came on the last business day of Janet Yellen's tenure as chairwoman of the Fed.

It was disclosed in 2016 that Wells Fargo workers had opened 2 million customer deposit and credit accounts without the customers' authorization. They have been doing this since 2011. The bank had to pay $185 million in penalties. This penalty is quite uncommon. While in the past the Fed has penalized banks for misconduct, they have never imposed such strict limits before. The punishment is such that until the firm makes sufficient improvements as dictated by the Fed, Wells Fargo will be restricted from growing any larger than its total assets of $2 trillion. The Fed will not allow the bank's balance sheet to expand beyond that size. Because the bank's assets tend to expand with the growth of the economy, the Fed predicts that this will have a significant effect on the bank's ability to grow. However, the bank will remain open for business and will continue to make new loans.

Wells Fargo has stated that within the next 60 days, it will submit a plan to the Fed that outlines how the bank will improve its board overview and risk management practices. CEO of Wells Fargo Timothy Sloan made a statement regarding this penalty: "We take this order seriously and are focused on addressing all of the Federal Reserve's concerns." He also mentioned that this order is unrelated to the bank's financial condition, which still remains quite strong. However, the bank's profits for this year are expected to go down by $300 million to $400 million.

In order to operate below the asset cap, the bank has said that it might reduce its portfolio in its commercial non-operational deposits, financial institution deposits and trading assets. Many believe that the bank is lucky that it is too big to be shut down and that had it been smaller, it might have lost its banking licenses. Thus, there is still hope that Wells Fargo could make a positive turnaround from this scandal and regain federal and consumer trust.