Chris Whalen has a must-read essay at Zero Hedge:
In the case of WFC [Wells Fargo], the bank has taken the position that NONE of its conforming residential exposures should be brought on balance sheet despite the FASB rule change. As we discussed in The Institutional Risk Analyst this week, "Why? Because the loans inside these securitization vehicles are insured by FHA, so goes the thinking of WFC and its auditor, thus the bank has no liability to these entities or the securities they have issued to investors. Pretty neat trick, eh?"
Thus WFC is basically saying that none of the bank's $1.1 trillion in conforming OBS [off balance sheet] exposures need to be represented or reserved against.
A "conforming loan" is one that meets lending guidelines, including loan amounts as set by the government sponsored enterprises, such as Fannie (FNM) as or Freddie (FRE).
As part of the 2008 stimulus bill, Congress temporarily increased the conforming amounts available through the FHA.
Bottom line: Wells Fargo is saying that since the FHA - that is, the government, that is, the taxpayers - will bail out Wells for loans that go bad, the giant bank doesn't have to reserve against these possible losses.
Yes, Wells is as bad as the other too big to fails. See this, this, this and this.