A few days before the end of the current administration, a regulator in the US banking industry finalized a rule that large US banks cannot refuse to lend money to oil and gas companies.
The Office of the Currency Controller (OCC) on Thursday released its finalized rule to ensure so-called fair access to banking services, according to which “banks should conduct risk assessments for individual customers, rather than make general decisions that affect the entire categories or classes of customers, when providing access to services, capital and credit. ”
Banks have become increasingly aware of the reputational consequences of lending to oil and gas projects in sensitive areas, such as the Arctic. In the United States, Goldman Sachs said in December 2019 that it would refuse to fund the exploration and production of Arctic oil and the development of new thermal coal mines or strip extraction. Wells Fargo, JPMorgan and Deutsche Bank have also said they will stop financing new oil and gas projects in the Arctic.
The rule, expected to take effect on April 1, 2021, will apply to the largest banks with assets of more than $ 100 billion.
However, major US banks criticized the rule during the comment period that ended last week, saying the new rule “would also appear to prohibit banks from using subjective reasoning and qualitative considerations, including reputational risk, to decide whether to provide a financial service that is entirely inconsistent with how the OCC has historically expected banks to make risk management decisions. ”
About: Saudi Arabia begins new Middle East oil bullfight
Commenting on the completed rule, Greg Baer, President and CEO of the Bank Policy Institute (BPI), a research and advocacy group for major US banks, said on Thursday:
“The rule has no logic or legal basis, ignores the basic facts about how banking works and will undermine the security and soundness of the banks to which it applies.”
The incoming Biden administration has several ways to stop the rule from coming into force, comments The Hill, including through a congressional review action or a delay in enforcing the rule from the new interim controller that President-elect Joe Biden will appoint probably next week while the candidate for the role is confirmed by the Senate.
By Charles Kennedy for Oilprice.com
More top readings from Oilprice.com: