Large U.S. banks can’t restrict specific industries from access to lending and other financial services, the Office of the Comptroller of the Currency said in a proposed rule Friday, a response to outcry from Republican lawmakers that banks were declining to support fossil fuel companies.
Under the proposed rule, big banks must allow fair access for banking services to all companies. A large bank can decide to deny services only based on an “objective” risk-based assessment of the individual person or company, the proposal says.
While the proposed rule applies more broadly than just energy companies, it appears to be in direct response to complaints from Republicans that big U.S. banks have been pulling out of financing fossil fuel projects, including coal and oil and gas drilling in the Arctic. The proposal directly references a letter Alaska Republican lawmakers sent the office in June arguing that banks such as Citigroup, JP Morgan, Morgan Stanley, and Wells Fargo were refusing to invest in new oil and gas drilling in the Arctic in moves that were “overtly political” and “unfairly” targeting the industry.
In its proposal, the Office of the Comptroller of the Currency said banks are “unequipped” to balance risks such as climate change that are “unrelated” to financial exposure, arguing that is squarely under the authority of Congress and federal energy and environment regulators.
“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 risks,” the proposal reads. “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 office noted, following the Alaska lawmakers’ letter, that it asked large banks to explain their decision to refuse investments in Arctic oil and gas drilling. The banks told regulators that they had decided to leave several portions of the energy industry, including coal mining and coal-fired power.
The proposal appears to be a last-ditch effort by the Trump administration to keep banks from pulling back money from the fossil fuel industry. If the proposal isn’t finalized by Jan. 20, President-elect Joe Biden could, and likely would, easily drop it.
Biden is expected to take a much more aggressive stance on climate finance, including likely requiring companies to disclose their financial risks to climate change effects and incorporating pricing of such risks into financial regulations.
The Federal Reserve is already moving in that direction. In recent weeks, the Fed has sounded the alarm on the risks climate change poses to financial markets and has requested to join a global network of central banks focusing on the issue.
The proposal also stands in stark contrast to where some of the big banks say they are headed.
Last month, JP Morgan, the biggest financier of fossil fuels in recent years, said it would align its financing with the Paris climate agreement, including by helping clients invest in low-carbon technologies. In September, Morgan Stanley announced a commitment to strive for net-zero financed emissions by 2050.
Republican lawmakers, however, are lauding the office’s new proposal.
“No matter who is being targeted, everyone should agree big banks should not use their outsized role in the economy, and public backing, to discriminate against perfectly legal businesses and industries,” said Sen. Kevin Cramer, a North Dakota Republican and member of the Senate Banking Committee who has been pressuring the Trump administration to act.
“They do not have the right to choose winners and losers or usurp the Constitution just because the services they provide are important,” he added.
