There is a place for politics – in elections, campaigns and in the national discourse – but banking is not that place. That’s why I’m encouraged to hear that the Office of the Comptroller of the Currency (OCC) has proposed a new rule that would “ensure that national banks and Federal savings associations offer and provide fair access to financial services.”
In an ideal financial world, such a measure would not be necessary. Banks have a fiduciary duty to lend money based solely on the borrower’s ability to repay, and fair access to loans is a fundamental part of any financial system. Free-market principles should therefore prevail.
Yet the U.S. banking system is increasingly under assault from interest groups seeking to pressure financial institutions to put politics over sound lending practices. Entire categories of lawful businesses – from energy companies to privately managed prisons – are at risk of being blackballed because their products or services don’t fit the prevailing political narrative. Have we forgot the financial changes in the mortgage industry based on government interference that caused the Great Recession. Over $16 trillion was lost because the government forced a change in the lending markets. We don’t need it again.
That’s wrong, unjust and, in many ways, it’s un-American.
Thankfully, the OCC has stepped in. Its Notice of Proposed Rulemaking would codify the basic standard that banks must lend solely based on credit-worthiness, with no regard to politics or other “forms of discrimination.” Under the proposal, big U.S. banks couldn’t refuse to lend to entire categories of lawful businesses. They could only deny customers access to financial services if the customer fails to meet “quantitative, impartial risk-based standards established by the bank in advance.”
The OCC action was triggered in part by a letter sent to the agency by the Alaska congressional delegation which expressed concern over recent pledges by five of the six largest U.S. banks – Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co. – to stop funding new drilling and exploration projects in the Arctic. The letter wisely noted the “critical importance of the energy sector to the U.S. economy” through jobs, revenue and national security benefits “attributable to the oil and gas industries targeted by the banks’ actions.”
As a Registered Investment Adviser for whom energy has been a core investment for a quarter century, I am concerned by this financial assault on the energy industry. But the destructive effects of this anti-lending trend extend much further.
As the OCC noted, there have been global calls to de-bank large farming and other agricultural businesses. Meanwhile, companies that operate in industries important to local economies and the national economy have been cut off from access to financial services. Others that have been “debanked” include markers of shotguns and hunting rifles.
As for privately-owned correctional companies, they have been a special target of progressive intimidation campaigns, even though they operate under fully legal and legitimate contracts with federal and state governments. Witness what happened on Valentine’s Day in 2019 when activists protested in front of J.P. Morgan CEO Jamie Dimon’s apartment with a Mariachi band, demanding that he “break up with prisons.” Unfortunately, the bank caved to these intimidation tactics. But Acting Comptroller of the Currency Brian Brooks does not find such antics amusing. He told The Wall Street Journal: “We need to stop the weaponization of banking as a political tool. It’s creating real economic dislocations.” Well said.
Changing this problematic state of affairs shouldn’t be controversial. The proposed new banking rule “largely codifies existing (OCC) guidance” under the Dodd–Frank Act, which “recognized a broad and longstanding anti-discrimination principle that individuals are entitled to be treated fairly by national banks and Federal savings associations.”
Support for this change should also be bipartisan. Even Obama-era Comptroller Thomas J. Curry noted in a 2014 speech that banks should “evaluate customers individually.” The OCC has since supported the “principle of individual, rather than category-based customer risk evaluation” in numerous reports, press releases and other agency comments. The new rule would be an exemplary way to reinforce anew the principle that lawful enterprises deserve the same access to financing as anyone else, whatever their politics.
As Sen. Dan Sullivan (R-AK) recently put it: “These banks that get huge federal government support…cannot collude together to essentially blackball entire sectors of the U.S. economy.” I could not agree more.
Sources: BPR: Trump’s plan to make banking great again