BOAR D O F GQVERNOR 5

OF T H E

FEDERAL RESERVE SYSTEM

WASHINGTON , 0 . C. 2055 1

ADDRESS OFFICIAL CORRESPONDENCE

TO THE BOARD

APR 1 0 2008

Mr. John Shrewsberry

Head of Securities Investment Group

Wells Fargo & Company

550 California Street

San Francisco, California 94104

Dear Mr. Shrewsberry:

This letter concerns the notice that Wells Fargo & Company

("Wells Fargo"), San Francisco, California, filed on October 4, 2007, under

section 4 of the Bank Holding Company Act ("BHC Act") to engage on a

limited basis in physical commodity trading activities.1

Wells Fargo states in the notice that it currently engages,

principally through its subsidiary, Wells Fargo Bank National Bank, also of

San Francisco, in commodity derivative activities that are permissible for bank

holding companies under the BHC Act ("Commodity Derivatives Activities").

These activities include trading in cash-settled swaps, forwards, options, and

other derivatives based on commodities. Wells Fargo has requested approval to

expand its current trading activities to include engaging in physically settled

commodity derivatives, taking or making delivery of commodities in settlement

of those derivatives, taking inventory positions in physical commodities, and

trading activities in the spot market in physical commodities ("Physical

Commodity Trading").

1 Wells Fargo would engage in the proposed activities through its wholly owned

subsidiary, Wells Fargo Energy Markets, LLC, also in San Francisco.

2

12 CFR 225.28(b)(8)(ii).
2

The Board has previously determined pursuant to Regulation Y that

taking and making delivery of a physical commodity complements the financial

activity of engaging regularly as principal in Commodity Derivatives Activities

based on that commodity. The Board has delegated to the Director of the

Division of Banking Supervision and Regulation ("Director"), with the

concurrence of the General Counsel, the authority to approve requests by

financial holding companies to engage in Physical Commodity Trading as an

activity that is complementary to Commodity Derivatives Activities, if the

proposal meets the conditions imposed by the Board when it has approved

previous requests to engage in Physical Commodity Trading and does not raise

significant legal, policy, or supervisory issues.

In evaluating the risks posed by the proposal, the Director and the

General Counsel have considered that Wells Fargo already incurs the price risk

of commodities through its Commodity Derivatives Activities. Permitting Wells

Fargo to engage in the limited amount and types of Physical Commodity

Trading activities described above, within the limits described in the appendix to

this letter, would not appear to increase significantly its potential exposure to

commodity price risk. To minimize potential increased risks associated with

Physical Commodity Trading (including, but not limited to, storage,

transportation, legal, and environmental risks), Wells Fargo has committed to

the Board that it will not (i) own, operate, or invest in facilities for the

extraction, transportation, storage, or distribution of commodities; or

(ii) process, refine, store, or otherwise alter a physical commodity itself. Wells

Fargo has further committed to the Board that it will limit the aggregate market

value of physical commodities that it and any of its subsidiaries hold at any one

time to 5 percent of Wells Fargo's tier 1 capital.4 Wells Fargo also has

3 The Royal Bank of Scotland Group pic, 94 Federal Reserve Bulletin

(2008); Board letters dated August 31, 2007 (BNP Paribas), April 24, 2007,

(Bank of America), March 27, 2007 (Credit Suisse Group), September 29, 2006

(Fortis S.A./N.V.), and April 13, 2006 (Wachovia Corporation); Societe

Generale, 92 Federal Reserve Bulletin CI 13 (2006); Deutsche Bank AG,

91 Federal Reserve Bulletin C54 (2005); JPMorgan Chase & Co.. 91 Federal

Reserve Bulletin C57 (2005); Barclays Bank PLC, 90 Federal Reserve Bulletin

511 (2004); UBS AG, 90 Federal Reserve Bulletin 215 (2004); and Citigroup

Inc., 89 Federal Reserve Bulletin 508 (2003).

4

See the appendix for a list of Wells Fargo's commitments.
3

established and maintained policies and systems for monitoring and controlling

the risks associated with Physical Commodity Trading. Going forward, Wells

Fargo is expected to continue to maintain effective risk-management policies

and systems pertaining to its Physical Commodity Trading. Approval of the

proposal would likely benefit Wells Fargo's customers by enhancing its ability

to provide efficiently a full range of commodity-related services and improving

its understanding of the commodity markets.

Based on the record, including all the commitments made to the

Board in connection with the notice and the conditions imposed by the Board in

previous cases, the Director, with the concurrence of the General Counsel, has

determined that the proposed Physical Commodity Trading activities are

complementary to the Commodities Derivatives Activities conducted by Wells

Fargo; that the proposal would not appear to pose a substantial risk to Wells

Fargo, depository institutions operated by Wells Fargo, or the financial system

generally; and that the proposal can reasonably be expected to produce benefits

to the public that outweigh any potential adverse effects.

In making these determinations, the Director and the General

Counsel relied on all the information, representations, and commitments

provided by Wells Fargo to the Board in connection with the notice and, in

particular, the commitments set forth in the appendix and the conditions

contained in the previous decisions noted above regarding these activities.

These commitments and conditions are critical to the determination that Physical

Commodity Trading activities would not pose a substantial risk to the safety and

soundness of Wells Fargo, other financial institutions, or the financial system

generally. These commitments and conditions are deemed to be conditions

imposed in writing by the Board in connection with the notice and this approval

and, as such, may be enforced in proceedings under applicable law. This

determination is also subject to all the conditions set forth in Regulation Y,

including those in section 225.7,5to the conditions contained in the Board's

previous decisions regarding these activities, and to the Board's authority to

require modification or termination of the activities of a

5

12 CFR 225.7.
4

bank holding company or any of its subsidiaries as the Board finds necessary to

ensure compliance with, or to prevent evasion of, the provisions and purposes of

the BHC Act and the Board's regulations and orders issued thereunder.

Sincerely yours,

Robert devTrrierson

Deputy Secretary of the Board

Attachment

cc: Federal Reserve Bank of San Francisco
5

Appendix

Commitments by Wells Fargo

1. Wells Fargo will limit the aggregate market value of physical commodities

that it and any of its subsidiaries hold at any one time as a result of the Physical

Commodity Trading to 5 percent of Wells Fargo's consolidated tier 1 capital.

Wells Fargo will include in this 5 percent limit the market value of any physical

commodities it holds as a result of a failure of reasonable effortsto avoid taking

delivery in commodities transactions conducted pursuant to section

225.28(b)(8)(ii)(B) of Regulation Y. In addition, Wells Fargo agrees to notify

the Federal Reserve Bank of San Francisco if the aggregate market value of

commodities held by it under the approval exceeds 4 percent of Wells Fargo's

tier 1 capital.

2. Wells Fargo will take and make physical delivery only of physical

commodities (i) for which derivative contracts have been authorized for trading

on a U.S. futures exchange by the Commodity Futures Trading Commission

("CFTC"), (ii) as to which the Board has specifically determined that all

financial holding companies with Physical Commodity Trading authority may

take or make physical delivery, or (iii) as to which Wells Fargo has been

informed by the Federal Reserve System that it may take or make physical

delivery (collectively, "Approved Commodities").

3. Wells Fargo will not process, refine, or otherwise alter a physical commodity

itself. Wells Fargo will contract with a third party for any services it needs in

connection with the handling of any commodity. Wells Fargo further commits

that it will not contract for the exclusive right to use a facility to alter

commodities for any period of time. Consistent with the Physical Commodity

Trading authority, Wells Fargo will contract with third parties (i) to alter only an

Approved Commodity and (ii) to alter the commodity only into another

Approved Commodity.

4. Wells Fargo will not use this authority to own, invest in, or operate facilities

for the extraction, transportation, storage, or distribution of commodities and

will only use storage and transportation facilities owned and operated by third

parties. Wells Fargo will enter into service agreements only with reputable

independent third-party facilities.
6

5. Wells Fargo will enter into long-term electricity supply contracts only with

commercial and industrial customers that consume electricity at a rate of at least

(i) 800 megawatt-hours/year or (ii) the minimum consumption level for large

commercial and industrial customers under applicable state law, whichever is

greater.