- A rule proposed Friday by the Office of The Comptroller of the Currency (OCC) would prohibit banks with more than $100 billion in assets from denying services such as lending and payment processing to businesses 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 are scaling back their lending in particular industries to align with environmental and social benchmarks.
- The 45-day comment period connected to the proposal (through Jan. 4) is uncommonly short, but may allow the agency a brief window to issue the rule before the Biden administration is expected to take office Jan. 20.
The proposal comes as Republican lawmakers from energy-producing states have lobbied the Trump administration to see whether the federal government can keep banks from denying financing 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 was meant to focus banks' attention on the risks of fraud and money laundering. The measure has since been blamed for inciting banks to reexamine their ties to risk-riddled sectors such as payday lenders and to borrowers connected to controversial social issues, such as gun violence and immigrant detention.
"These banks that get huge federal government support ... cannot collude together to essentially blackball entire sectors of the U.S. economy," Sen. Dan Sullivan, R-AK, told The Wall Street Journal, ahead of the proposal.
"We are seeing a disturbing trend in the financial services industry — the intentional discrimination of entire industries, such as firearms manufacturers, by the largest banks in the United States," Senate Banking Committee Chairman Mike Crapo, R-ID, said Friday in a statement.
In the proposed rule, acting Comptroller Brian Brooks points to a hypothetical bank denying services to an oil company because it "want[ed] to give an advantage to wind farms or solar companies." But he clarified, in a call with reporters Friday, that the rule wasn't written with only conservative interests in mind.
"We're not just talking about calls to ban firearms manufacturers or calls to de-bank fracking companies," Brooks said, according to American Banker. "We're talking about calls to de-bank independent ATM operators, calls to de-bank Planned Parenthood and other family planning organizations, calls to de-bank agricultural operations. These things are not politically partisan."
Under the proposal, banks could still deny services but would have to justify their reasoning by showing the person or business failed to meet "quantitative, impartial risk-based standards established by the bank in advance."
The OCC said in the proposal the crux is not that banks are denying services to companies in a particular industry. It's that the reasoning is "based on criteria unrelated to safe and sound banking practices," such as "personal beliefs and opinions on matters of substantive policy that are more appropriately the purview of state and Federal legislatures," the agency said.
"The OCC believes these criteria are not, and cannot serve as, a legitimate basis for refusing to grant a person or entity access to financial services," the agency wrote.
In the past 12 months, Goldman Sachs, JPMorgan Chase, TD Bank and Deutsche Bank have said they would no longer 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 finance more drilling in the Arctic not because of some vast liberal conspiracy, but because it's bad business," Ben Cushing, a senior campaign representative with the environmental advocacy group, told Bloomberg. "The idea that this constitutes discrimination is ludicrous."
Banks' environmental, social and governance goals — particularly over the last two years — stretch far past oil, but the fight to stem climate change is central to their ambitions. Morgan Stanley, Citi, Bank of America and TD have joined the Partnership for Carbon Accounting Financials, a consortium that intends to standardize the way banks measure and reduce their climate impact.
JPMorgan Chase last month aligned itself with the Paris climate agreement, pledging to reach net-zero emissions by 2050.
Goldman Sachs last year launched an ambitious 10-year plan targeting "climate transition and inclusive growth finance."
The OCC, it appears, would rather banks stick strictly to finance. "Neither the OCC nor banks are well-equipped to balance risks unrelated to financial exposures and the operations required to deliver financial services," the agency wrote Friday. "Climate change is a real risk, but so is the risk of foreign wars caused in part by U.S. energy dependence and the risk of blackouts caused by energy shortages.
"It is one thing for a bank not to lend to oil companies because it lacks the expertise to value or manage the associated collateral rights," the OCC added. "It is another for a bank to make that decision because it believes the United States should abide by the standards set in an international climate treaty."
The OCC put forth the proposed rule without participation from its fellow regulators, the Federal Reserve and Federal Deposit Insurance Corp. (FDIC). It wouldn't be the first time that has happened. The OCC drew fire in May for quickly issuing a rewrite of the Community Reinvestment Act (CRA) without sign-off from the 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 FDIC.
The proposal also seeks comments about whether the OCC should consider a secondary threshold based on bank's national market share in a given area.
"We need to stop the weaponization of banking as a political tool," Brooks told The Wall Street Journal last week. "It's creating real economic dislocations."
The agency's window to issue a final rule is brief. President Donald Trump said last week he intends to nominate Brooks to a five-year term. If the Senate approves him, the Biden White House can still lean on legal authority that has never been used if it wants to replace Brooks with its own nominee.
However, Graham Steele, a former Democratic Senate staffer who serves as director of the Corporations and Society Initiative at Stanford University's Graduate School of Business, said banks won't be cowed.
"Lenders are realizing that a lot of these projects just aren't financially viable, and no amount of government coercion is going to change that," he told the Journal.