OCC proposal bans banks from refusing to lend to oil and gun companies
- A ruler proposed friday by the Office of the Comptroller of the Currency (OCC) would ban banks with more than $ 100 billion in assets from denying services such as lending and payment processing to companies in one industry over another as long as the potential client passes the risk assessment.
- The proposed rule comes as many of the world’s largest banks cut lending in particular sectors to align with environmental and social standards.
- The 45-day comment period on the proposal (until Jan.4) is unusually short, but may give the agency a brief window to publish the rule before the Biden administration takes office on Jan.20.
The proposal comes as Republican lawmakers in energy-producing states have pressured the Trump administration to see if the federal government can stop banks from denying funding to oil and gas companies, or punish banks for doing so.
But it also raises the specter of Operation Choke Point, an Obama-era initiative that aimed to draw banks’ attention to the risks of fraud and money laundering. The measure has since been blamed for prompting banks to reconsider their links with risky sectors such as payday lenders and with borrowers linked to controversial social issues, such as Gun violence and immigration detention.
“These banks that receive enormous support from the federal government … cannot agree to essentially block entire sectors of the US economy,” said Senator Dan Sullivan, R-AK. The Wall Street Journal, before the proposal.
“We are seeing a disturbing trend in the financial services industry – the intentional discrimination of entire industries, such as gun manufacturers, by the largest banks in the United States,” the Senate committee chairman said on Friday. of banks, Mike Crapo, R-ID. in a report.
In the proposed rule, Acting Controller Brian Brooks indicates that a hypothetical bank denies services to an oil company because it “wants to[ed] to give an advantage to wind farms or solar companies. But he said in a call with reporters on Friday that the rule was not written with only conservative interests in mind.
“We’re not just talking about calls to ban gun manufacturers or calls to bank fracking companies,” Brooks said, according to American banker. “We are talking about calls for the removal of the bank from independent ATM operators, calls for the removal of the Planned Parenthood bank and other family planning organizations, calls for the removal of the bank from farm operations. These things are not politically partisan. “
Under the proposal, banks could still refuse services, but would have to justify their reasoning by showing that the person or company failed to meet “quantitative and impartial risk-based standards set in advance by the bank. Bank”.
The OCC said in the proposal that the crux is not that banks refuse services to companies in a particular sector. This is because the reasoning is “based on criteria unrelated to safe and sound banking practices,” such as “personal beliefs and opinions on substantive policy issues which are more within the purview of state and federal legislatures.” , the agency said.
“The OCC believes that these criteria are not and cannot serve as a legitimate basis for denying a person or entity access to financial services,” the agency wrote.
Over the past 12 months, Goldman Sachs, JPMorgan Chase, TD Bank and Deutsche Bank have stated that they do not finance new drilling projects in the Arctic, according to the Sierra Club.
“Contrary to the claims of oil-backed politicians, banks don’t want to fund more Arctic drilling not because of a large liberal conspiracy, but because it’s a bad deal,” Ben Cushing, a senior campaign representative for the environmental group. Bloomberg said. “The idea that this constitutes discrimination is ludicrous.”
The banks’ environmental, social and governance goals – especially over the past two years – go far beyond oil, but the fight to stem climate change is at the heart of their ambitions. Morgan Stanley, Citi, Bank of America and TD have joined the Partnership for Carbon Accounting Financials, a consortium that intends to standardize how banks measure and reduce their impact on the climate.
JPMorgan Chase last month aligned itself with the Paris climate agreement, committing to achieve net zero emissions by 2050.
Goldman Sachs launched an ambitious ten-year plan targeting “the financing of climate transition and inclusive growth”.
The OCC, it seems, would prefer the banks to stick strictly to finance. “Neither OCC nor banks are well equipped to balance risks unrelated to financial exposures and the transactions required to provide financial services,” the agency wrote on Friday. “Climate change is a real risk, but so too is the risk of foreign wars caused in part by America’s energy dependence and the risk of power outages caused by energy shortages.
“It is one thing for a bank not to lend to oil companies because it does not have the expertise to assess or manage the associated guarantee rights,” added the OCC. “It is quite another for a bank to make this decision because it believes the United States should comply with the standards set in an international climate treaty.”
The OCC introduced the proposed rule without input from its fellow regulators, the Federal Reserve and the Federal Deposit Insurance Corp. (FDIC). It wouldn’t be the first time this has happened. The OCC was shot in May for quick issue a rewrite of the Community Reinvestment Act (CRA) without the approval of other agencies. However, for this proposal, the agency cites a “fair access” provision of the Dodd-Frank Act that affects the OCC but not the Fed or the FDIC.
The proposal also invites comments on whether the OCC should consider a secondary threshold based on the bank’s domestic market share in a given area.
“We have to stop the militarization of banking as a political tool,” Brooks told The Wall Street Journal last week. “This is creating real economic upheaval.”
The agency window for posting a final rule is brief. President Donald Trump said last week that he intends to appoint Brooks for a five-year term. If the Senate approves it, the White House Biden can still rely on legal authority that has never been used if it wants to replace Brooks with its own candidate.
However, Graham Steele, a former member of the Democratic Senate and director of the Corporations and Society Initiative at Stanford University’s Graduate School of Business, said the banks would not be intimidated.
“Lenders are realizing that many of these projects are just not financially viable, and no government coercion will change that,” he told the Journal.