A pedestrian passes the seal of the Currency Controller’s Office (OCC) displayed outside the organization’s headquarters in Washington, DC, USA, on Wednesday, March 20, 2019.
Andrew Harrer | Bloomberg | Getty Images
The currency controller’s office has announced that it has discontinued its rule on fair access to financial services, a move it said would allow the next confirmed currency controller to review the final rule and public comments received by the OCC.
The rule would subject the largest banks to control when they refuse services to any customer on the basis of risk factors that cannot be quantified, such as some environmental, social and governance risks, as well as reputational risks.
Critics, from commercial banking groups to ESG investors and law scholars, said at the time the rule was finalized earlier this month that it was rushed, poorly motivated, poorly written and could be subject to legal and congressional challenges.
About 35,000 public comments in response came by the January 4 deadline. The rule was proposed in November, and the deadline for comments was much shorter than the standard 60 to 90 days. The regulator, which must review all public comments before finalizing the rules, issued it eight working days after that deadline.
“The OCC’s long-term supervision guide, which states that banks should avoid terminating broad categories of customers without assessing individual customer risk, remains in place,” it said in a statement on Thursday. “The decision to discontinue the rule was an independent decision of the OCC.”
Some conservative think tanks and industry segments that feel threatened by problems that banks have increasingly denied services to, including lending – such as in energy, arms manufacturing and agriculture – have backed the rule. Critics referred to it as the “arms manufacturer and oil drilling rule”, although voices voicing support were more widespread, including for example agricultural interests concerned that animal rights activists could target banks that lend them. Cryptocurrency projects, marijuana companies, sex workers and other niches also felt threatened and found support from groups such as the Electronic Frontier Foundation, which referred to the rule’s purpose as ending “financial censorship”.
An OCC spokesman previously told CNBC that many critics erred in banning banks from discontinuing service and lending to risky businesses. “It’s wrong. The proposal requires large banks to show their work and conduct objective risk assessments of individual customers in terms of providing services in accordance with previous guidance issued by the Office of the Currency Controller.”
The rule applies to the largest banks with assets of more than $ 100 billion that “can exert significant price power or influence on sectors of the national economy.”
The rule requires hedged banks to make products and services available to all customers in the communities they serve, based on fair, quantitative, risk-based standards set by the bank.
Opposition from commercial banking groups was consistent, as the rule was proposed for the first time and after it was finalized.
“We are disappointed that the interim controller has chosen to quickly pursue the final approval of this hastily designed and poorly constructed rule on his last day in office. The rule has no logic or legal basis, ignores the basic facts about how the bank works and will undermine the security and soundness of the banks to which it applies, “said Greg Baer, President and CEO of Bank Policy Institute. representing its largest banks, in a statement earlier this month. “Its substantial problems are overcome only by the flagrant procedural failures of the rule-making process and, for these reasons, it is unlikely to withstand control.”
The American Bankers Association, which represents the banking industry as a whole, was concerned about the risk of applying a broader interpretation to all banks and called the rule “arbitrary and capricious” in a letter of comment to the OCC filed last month and said it was missing. “A clear legal authority, its inconsistency and potential conflict with the practice of long-term and widely accepted risk supervision and management”.
ESG investors have been just as tough.
“This rule says banks should not be involved in risk assessment. That’s what banks do every day,” said Steve Rothstein, head of Ceres Accelerator for Sustainable Capital Markets, a sustainable investment support group. “Those who do well make healthy loans and we clearly see a trend of greater awareness and involvement with ESG,” he told CNBC earlier this month. “You can’t just say it’s not a line of business you want to be in. This is one last outrageous attempt. The broader issue of how we measure risk, quantify climate risk, is an important one, but this special rule is a distraction. “