Nov 23, 2020 - Economy

Major regulator makes 11th-hour move to sink banks' oil limits

Sinking $100 bill

Illustration: Aïda Amer/Axios

A major regulator is racing to thwart big banks' refusal to lend and service certain industries and projects — including Arctic oil drilling and new coal mining.

Why it matters: America's biggest banks are increasingly scaling back ties with fossil fuel, prison and gun-manufacturing businesses amid public pressure and changing investment preferences.

Driving the news: The Office of the Comptroller of the Currency — one of three key banking regulators — floated draft rules Friday that say banks can't turn away entire industries. Rather, they have to prove that they decided not to lend because applicants didn’t meet "quantitative, impartial risk-based standards."

  • "Politically controversial but lawful businesses" deserve "fair access to financial services under the law," the proposal says.

Catch up quick: Banks like JPMorgan Chase, Citi and Goldman Sachs have crafted or expanded policies for new coal mines, coal-fired power and Arctic drilling.

  • JPMorgan said last year it would no longer provide banking services to the private prison operators, while the Bank of America said in 2018 that it would stop financing businesses that make military-style guns.

What they're saying: “There is a creeping politicization of the banking industry that has the propensity to be very, very dangerous,” said Brian P. Brooks, acting comptroller of the currency, per Bloomberg.

The other side: "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," Sierra Club's Ben Cushing says.

Reality check: The ruling — if enacted, which is a long shot — likely won't stop banks from shunning certain industries. It would be difficult to enforce.

  • Daniel Stipano, a partner at law firm Buckley and former deputy chief counsel at the OCC, tells Axios a bank "would have to point to something besides a political judgement as the reason for not making the loan."

The big picture: It's the latest effort under the Trump administration to whittle away at investments that factor in industries' societal impact.

  • Earlier this month, the Labor Department finalized a rule that put a high burden on retirement funds that want to include investments that strip out fossil fuel companies and other non-sustainable businesses.

What we're watching: The clock. The OCC's last-ditch effort may ultimately prove meaningless.

  • Attorney James Goodwin of the left-leaning Center for Progressive Reform tells Axios that "short of a miracle, I don’t see how they could get a final rule out before inauguration."

The intrigue: The OCC is taking public comments until Jan. 4, and then would have a fast turnaround to complete the rule before President-elect Joe Biden takes office.

  • The Biden administration — by installing its preferred OCC head — could unwind a completed rule, but that's complicated and slow compared to abandoning an incomplete proposal.
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