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U.S. Watchdog: Large U.S. Banks Can No Longer Deny Funding To Oil & Gas

Days before the end of the current Administration, a U.S. banking industry regulator finalized a rule under which large American banks cannot deny lending money to oil and gas companies.

The Office of the Comptroller of the Currency (OCC) released on Thursday its finalized rule to ensure the so-called fair access to banking services, under which “banks should conduct risk assessment of individual customers, rather than make broad-based decisions affecting whole categories or classes of customers, when provisioning access to services, capital, and credit.”

Banks have grown increasingly aware of the reputational consequences of providing lending to oil and gas projects in sensitive areas such as the Arctic, for example. In the United States, Goldman Sachs said in December 2019 that it would decline to finance new Arctic oil exploration and production and new thermal coal mine development or strip mining. Wells Fargo, JPMorgan, and Deutsche Bank have also said they would stop financing new oil and gas projects in the Arctic.  

The rule, expected to take effect on April 1, 2021, is set to apply to the largest banks with more than $100 billion in assets.  

The largest U.S. banks, however, have criticized the rule during the comment period that ended last week, saying that the new rule “would also appear to prohibit banks from using subjective judgment and qualitative considerations, including reputational risk, in deciding whether to provide a financial service, which is entirely inconsistent with how the OCC has historically expected banks to make risk management decisions.”

Related: Saudi Arabia Starts New Bull Run In Middle East Oil

Commenting on the finalized rule, Greg Baer, president and CEO of the Bank Policy Institute (BPI), a research and advocacy group for big U.S. banks, said on Thursday:

“The rule lacks both logic and legal basis, it ignores basic facts about how banking works, and it will undermine the safety and soundness of the banks to which it applies.”  

The incoming Biden Administration has several ways to stop the rule from taking effect, The Hill comments, including by a Congress review action or a delay in enforcing the rule from the new acting comptroller that President-elect Joe Biden will likely name next week while his nominee for the role is confirmed by the Senate.

By Charles Kennedy for Oilprice.com

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