Never before has the Fed placed a firmwide limit on a bank, stopping them from growing. Outgoing Fed Chair Janet Yellen described the growth restriction as "unique and more stringent then the penalties the Board has imposed against other bank holding companies for similar unsafe and unsound practices, but is appropriate given the pervasiveness and persistence of the problems at Wells Fargo."
The Fed has enacted this by preventing the bank from growing assets. This means, that all else equal, the bank cannot write any new loans.
However, there are some changes within their balance sheet that they can make in order to be able to lend, such that they remain "open for business" in CEO Tim Sloan's words. Still, these changes may cost them in the region of $400 million of earnings for this year alone, according to the bank's estimates.
The rationale for this particular form of punishment stems from the bank having prioritized growth since the financial crisis. In the Fed's view, Wells Fargo failed to increase risk management and oversight alongside that growth.
Thus, the central bank decided to limit growth until things like risk management catches up. It also felt the incentive for Wells Fargo to act will be strong, since they will be starved of the growth they seek in the meantime.
Wells Fargo announced concurrently that it would replace 4 board members, three by April. This follows three changes in 2016, and three just last month, including a new chair, Betsy Duke, who had previously worked at the Fed. These Board changes were not specifically demanded by the Fed: The consent order made clear that one area with which risk management and oversight could be improved was having the right people on the board.
The consent order had to be signed by all 16 current members of the board. Sources at the Fed suggested to CNBC that the move was needed to ensure board members were fully aware of their responsibilities to finally and fully address the misconduct.
In order to do that, the bank must submit a new risk management plan within 60 days, and then face a third party review on September 30 — at which point it is possible the sanctions will be lifted. Until then, the Fed reserves the right to add additional punishments if new information arises, but based on the state of play today this punishment is meant to be all encompassing.
It remains to be seen whether other regulators, such as the San Fransisco Fed (Wells Fargo's state regulator) or the Office of the Comptroller of the Currency (OCC), will decide to pursue fresh action against Wells (The bank already settled with the CFPB in 2016).