Banks fear contempt if energy loan regulation goes into effect | Rigzone
(Bloomberg) – Wall Street banks are asking a key regulator to drop a proposed rule that would require them to do business with energy and gun companies that could subject them to public contempt, calling into question question the legal basis of a measure they consider unfair accelerated.
The “fair access” rule proposed by the Office of the Comptroller of the Currency on Nov. 20 would place excessive burdens on lenders and could threaten their business models, banking industry groups said in comment letters to the agency . Industry groups also challenged the OCC’s authority to issue the rule, arguing that the 45-day comment period that ended on Monday did not give them enough time to respond.
Brian Brooks, the acting chief of the OCC, wants to ban banks from refusing to serve legal businesses – such as those in the petroleum industries, prisons and guns – that they might otherwise avoid due to the risk damage their reputation. Under the rule, a bank must conduct a risk assessment of any potential customer and cannot turn down the business as long as the numbers are solid.
The OCC effort was launched after Republican lawmakers complained about banks’ refusal to fund energy projects, citing concerns about climate change. Lenders, including Citigroup Inc. and Bank of America Corp., also have limited ties to the gun industry.
The opening salvo of the debate was Operation Choke Point, a controversial Obama-era Justice Department effort to thwart money laundering in areas it saw as particularly risky, including lenders on salary, gun dealers and escort services. The program has drawn criticism from Republican lawmakers, including Senate Banking Committee Chairman Mike Crapo, who supports the OCC’s new push.
Brooks, who has been appointed by President Donald Trump for a full term as comptroller, faces time constraints to end the rule as he could be replaced after President-elect Joe Biden takes office on January 20 .
“The fundamental practical problems of the proposal are compounded by its fundamental legal flaws,” the Bank Policy Institute said in its letter. This would “effectively replace the traditional business of the US bank” by abandoning a company’s risk management decisions for a system in which the regulator dictates “to whom financial services are to be provided.”
The proposal has attracted thousands of letters of comment, with many supporting its demand that the big banks open their doors to gun companies.
Consumer groups and Democratic lawmakers have joined with lenders in criticizing the rule, focusing more on the issue of climate change than on banks’ business models.
“This proposed rule directly undermines the responsibility of the OCC to ensure a safe and sound banking sector,” said Senator Brian Schatz of Hawaii, who co-signed a letter of comment with a group of Congressional Democrats . “It is extremely disturbing that a federal regulator is using its supervisory authority to pressure banks into financing projects that the banks themselves have deemed too risky.”
Bankers also questioned the OCC’s reliance on the language of the Dodd-Frank law ordering the agency to ensure “fair access to financial services” as the basis for the rule. It “compels gullibility” to anchor an “important, heavy and new rule” on this clause, the American Bankers Association said in its letter.
“We are reviewing all stakeholder comments as we prepare a final rule,” said Bryan Hubbard, OCC spokesperson.
© 2021 Bloomberg LP