"We can not tolerate pervasive and persistent misconduct at any bank", outgoing Fed Chair Janet Yellen said in a statement, citing "recent and widespread consumer abuses and other compliance breakdowns".
Wells Fargo's assets are now capped at $1.95 trillion.
"Chair Yellen has performed a great service to her country, the economy and the American people were in good hands with her at the helm of our central bank", said Brookings President John Allen in a statement.
The Washington think tank announced that Yellen will be joining the institution's Hutchins Center on Fiscal and Monetary Policy as a distinguished fellow in residence.
Wells Fargo CEO Tim Sloan said: "While operating under this constraint, we are open for business and we will continue to serve our customers' financial needs including saving, borrowing, and investing".
Since then, the bank has also admitted to other questionable practices, including charging car-loan customers for insurance they did not need and charging improper fees to some mortgage borrowers. She picked up where her predecessor, Ben Bernanke, had left off in nurturing the country's recuperation from a crisis that almost toppled the financial system. She also sent a letter on Friday to Senator Elizabeth Warren, a Democrat who's among the bank's most prominent critics.
After Federal Reserve approval, the company will engage independent third parties to conduct a review to be completed no later than September 30, 2018 to confirm adoption and implementation of the plans.
The statement said Wells Fargo had prioritized growth over ensuring effective risk management.
As part of an agreement with regulators, Wells Fargo will replace four board members this year as it struggles to recover from a 2016 scandal in which it uncovered millions of phony accounts created without customer consent. It projected profits might be cut by as much as $400 million, or less than 2 percent of last year's $22.2 billion of net income. The Fed didn't identify which board members will have to leave.
The Fed instructed the bank's board to engage in more intrusive oversight of Wells Fargo's senior managers and come up with a plan to hold them accountable if they fall short.
The bank must submit a plan to the Fed within 60 days detailing how it has enhanced oversight from its board of directors and improved compliance and risk management functions, and how it plans to improve further.
Penalties in the amount of $185 million were paid by the bank and the bank in 2017 reached a preliminary settlement of a class-action suit of $142 million.
Late past year, the OCC told the bank's board that authorities may take additional enforcement actions over the auto insurance and mortgage improprieties, people familiar with the situation said.