Banking: A fair access rule for miners and drillers

Banking: A fair access rule for miners and drillers

After complaints from the energy industry, a Wall Street regulator wants banks to get out of politics, said Andrew Ackerman in The Wall Street Journal. Last month, the Office of the Comptroller of the Currency issued a proposal mandating that the country’s biggest financial institutions provide “fair access” to their services to any business that meets the “riskbased standards established by the bank in advance.” The measure comes after “increasing pressure” on banks to blacklist industries seen as harmful. 

Five of the six largest U.S. banks “have pledged over the past year to end funding for new drilling and exploration projects in the Arctic,” while Wells Fargo has prohibited lending to coal miners that practice a controversial mountaintopremoval technique. Regulators say oil exploration is just one of several categories of businesses—including gun manufacturers, private prisons, and family-planning centers—that have been denied equal treatment “for apparently partisan reasons.” Controlling financing is “a great way to control people,” said Andrea O’Sullivan in Reason.com. That was the goal of Operation Chokepoint, the Obama administration’s effort to get the Federal Deposit Insurance Corporation (FDIC) and OCC to pressure banks that processed payments for payday lenders, gun firms, and cryptocurrency companies. 

This “roundabout dispossession” effort continued until the Trump administration wound it down in 2017. The OCC’s new rule doesn’t say “that all large banks must do business” with oil companies. But it gives banks tools to stand up to the government’s efforts to use “extralegal methods to get rid of businesses” it doesn’t like. Somebody needed to step in, said The Wall Street Journal in an editorial, “because political intimidation is succeeding.” Demands to disassociate from for-profit colleges and military contractors were probably next on the list. This rule gives “banks political cover to repudiate the activists” and get back to their business. 

This could backfire on conservatives, said John Berlau in the National Review. “Under a Biden administration, the rule could easily be turned on its head and used as a cudgel to force banks to make loans to wind farms, ethanol producers,” or abortion clinics. The best way to curb partisan-favoritism banking is by clearing the red tape that curtails competition among lenders. New platforms “where vilified but legal companies can go to secure financing” are already emerging, said JP Koning in CoinDesk.com. Some customers want to do business with a bank that has a “clean supply chain” and avoids coal miners. If the banks serving them choose to forgo profits on Alaskan oil drilling, other lenders will “swoop in.” Operation Chokepoint was “reprehensible,” but the way to fix lending isn’t with a new regulation that “has a huge blast radius.”

 

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