Days before the end of the current administration, a US banking regulator finalized a rule under which major US banks cannot refuse to lend money to oil and gas companies.
The Office of the Comptroller of the Currency (OCC) released its final rule on Thursday to ensure so-called fair access to banking services, according to which “ banks should conduct risk assessments of individual clients rather than make broad decisions affecting categories or classes of customers, in providing access to services, capital and credit. “
Banks have become increasingly aware of the reputational implications 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 new Arctic oil exploration and production and new thermal coal mining development or strip mining. Wells Fargo, JPMorgan and Deutsche Bank have also said they would stop funding new oil and gas projects in the Arctic.
The rule, which is expected to take effect on April 1, 2021, will apply to the largest banks with more than $ 100 billion in assets.
However, the largest U.S. banks have criticized the rule during the comment period that ended last week, saying the new rule also “ appears to prohibit banks from using subjective judgment and qualitative considerations, including reputational risk, to decide whether to provide a financial service, which is completely contrary to the way the OCC has traditionally expected banks to make risk management decisions. “
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Greg Baer, president and CEO of the Bank Policy Institute (BPI), a research and advocacy group for major US banks, comments on the final rule. said on Thursday:
“The rule lacks both logic and legal basis, it ignores basic facts about how banking works, and it will undermine the security and soundness of the banks to which it applies.”
The incoming Biden administration has several ways to prevent the rule from taking effect, notes The Hill, including through a Congressional overhaul or a delay in the rule’s enforcement by the new acting inspector President-elect Joe Biden will likely call next week, while his candidate for the role is confirmed by the Senate.
By Charles Kennedy for Oilprice.com
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