In August, we discussed the dangers of the American banking industry picking winners and losers for energy development. Banking boycotts of energy projects have worked to starve U.S. fossil fuel companies of needed capital, ultimately raising prices for consumers.
Over the past year, several of the largest U.S. banks have announced that they would no longer finance drilling operations in the Arctic. Such declarations have become nearly unanimous among major banks and are almost certainly due to third party activists cranking up the pressure to force a boycott. Unfortunately, this activism leaves consumers in the lurch. Why? Because activism like this forces energy developers to go elsewhere for funding. Developers usually pay much higher costs for this alternative financing and consumers ultimately absorb these costs. That isn’t fair to consumers or energy developers hoping to bring affordable and reliable energy to the domestic marketplace.
“These banks that get huge federal government support…cannot collude together to essentially blackball entire sectors of the U.S. economy,” says Alaska Senator Dan Sullivan.
Fortunately, the Office of the Comptroller of the Currency (OCC) is taking action to rectify the situation. On November 20, the OCC proposed a new rule forbidding large U.S. banks from denying funding to entire categories of businesses based solely on political philosophies.
“We need to stop the weaponization of banking as a political tool,” Brian Brooks, the acting comptroller, said in an interview this week. “It’s creating real economic dislocations.”
So, how does the OCC action help consumers? The rulemaking would apply to financial institutions with more than $100 billion in assets. It would require banks to look at the economic viability of energy projects on a case-by-case basis rather than approving or denying a project based on one board-based political philosophy. In other words, funding for energy development projects would be merit-based. The proposed OCC action protects banks as well. The titans of Wall Street could still deny financing for specific projects by demonstrating that an energy development initiative failed to meet “quantitative, impartial risk-based standards established by the bank in advance.” The OCC proposal is clearly a win-win for everyone.
The proposed rule is in a 45-day comment period until January 4. The timeline is uncommonly short, but this small window will permit the regulation to become final before the Biden Administration enters office on January 20.
As we’ve said before, bank boycotts of fossil fuel projects help no one and do little for the fight against climate change. Americans need access to affordable and reliable energy, especially in these uncertain times. We applaud the OCC for taking this much-needed action to end this unfair targeting of energy companies.