OCC rule targets banks that red-line oil projects in the Arctic
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The Office of the Comptroller of the Currency proposed a rule Nov. 20 directing fair access to banking services - consistent with the Dodd–Frank Act mandate - from national banks, federal savings associations, and federal branches and agencies of foreign bank organizations.
While the rule aims to protect a wide range of industries that may have experienced discrimination from banks, the OCC - in a notice published in the Federal Register - referenced a June 2020 letter it received from the Alaska Congressional delegation regarding decisions by several of the nation’s largest banks to stop lending to new oil and gas projects in the Arctic.
In response to the June letter, the OCC contacted several large banks and determined that in 2019 and 2020, the banks had decided to withhold financial services to major energy industry categories, including coal mining, coal-fired electricity, and/or oil exploration in the Arctic.
“The terminated services were not limited to lending, where risk factors might justify not serving a particular client (e.g., when a bank lacked the expertise to evaluate the collateral value of mineral rights in a particular region or because of a bank’s concern about commodity price volatility),” the OCC said. “Instead, certain banks indicated that they were also terminating advisory and other services that are unconnected to credit or operational risk.”
The OCC said some banks indicated they would only make exceptions when benchmarks unrelated to financial risk are met, such as whether the country in which a project is located has committed to international climate agreements and whether the project controls carbon emissions sufficiently. “Neither the OCC nor banks are well-equipped to balance risks unrelated to financial exposures and the operations required to deliver financial services,” the OCC said. “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.”
Balancing those risks, the OCC said, is the purview of Congress and federal energy and environmental regulators.
Organizations involved in politically controversial but lawful businesses are entitled to fair access to financial services under the law, it said.
All banks must provide fair access to financial services, but it is particularly important that the nation’s largest banks do, the OCC said.
“Large banks exercise sufficient market power to influence the price of financial services, and only the largest banks have the diversified balance sheets and sophisticated risk management systems to serve certain industries,” it said. “It is also fair to place particular responsibilities on the largest banks because their systemic importance often results in their receiving assistance and favorable treatment from the government during periods of financial distress.”
- STEVE SUTHERLIN