OCC Plan Would Force Banks to Lend to Oil and Gun Companies

A Wall Street regulator appointed by President Donald Trump wants to force banks to finance unpopular businesses the industry has been known to shun -- a list that includes oil companies, gun manufacturers and private prisons.

Acting Comptroller of the Currency Brian Brooks on Friday proposed a rule that would require banks to extend services and credit to any customers that pass their risk assessments. The move addresses a concern raised by Republicans that lenders including Citigroup Inc. and Bank of America Corp. have engaged in discrimination due to public pressure or their own distaste for certain industries.

“There is a creeping politicization of the banking industry that has the propensity to be very, very dangerous,” Brooks told reporters Friday in a call about the rule, which would affect lenders with more than $100 billion in assets.

The proposal, which the Office of the Comptroller of the Currency is advancing without the backing of other U.S. banking agencies, faces an uncertain path with the Trump administration ending and President-elect Joe Biden set to take office in January. While the White House has signaled that Brooks will be nominated for a full five-year term at the agency, the law allows Biden to fire him so long as he communicates the reason to the Senate.

Banks avoiding politically sensitive customers has been a key talking point for Republican lawmakers, who have raised the specter of Operation Choke Point, an effort by the Justice Department under President Barack Obama to ferret out money laundering in industries it considered high-risk -- including payday lenders, firearms dealers, escort services, drug sales, pornography and online gambling.

“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, an Idaho Republican, said in a Friday statement praising the OCC proposal.

Republican lawmakers have long argued that regulators had exceeded their authority in directing banks to turn away legal businesses, arguing that politics shouldn’t have a place in banking -- a sentiment echoed in the OCC plan.

“Neither the OCC nor banks are well-equipped to balance risks unrelated to financial exposures and the operations required to deliver financial services,” according to the proposal’s text. “For example, 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.”

The proposal is the latest move by the OCC without participation from the Federal Reserve and Federal Deposit Insurance Corp., the two agencies that share in U.S. oversight of the banking industry. In this case, the OCC is citing legal support from a “fair access” provision of the Dodd-Frank Act that affects that agency and not the others.

While the OCC does oversee the most banking activity, major industry rules have traditionally been collaborations among the three agencies. When they aren’t, banks can face uneven compliance expectations -- as is already feared in the OCC’s recent overhaul of the Community Reinvestment Act.

The OCC has opened a 45-day window for public comment on the proposal, an unusually short period that would allow the agency to receive that input before Biden takes office on Jan. 20. Brooks insisted the agency is independent and the White House changing hands isn’t a consideration in this process.

The agency’s proposal immediately drew condemnation from consumer and environmental groups.

“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,” said Ben Cushing, who advocates against the fossil fuel industry for the Sierra Club. “The idea that this constitutes discrimination is ludicrous.”

©2020 Bloomberg L.P.

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