As climate change intensifies, Wall Street firms are under pressure to stop investing in projects that make the crisis worse. But after Alaska’s Republican congressional delegation complained that banks were pulling back from Arctic oil and gas development, a Trump-appointed financial regulator just announced a new rule designed to force banks to continue financing fossil fuel projects.
The rule follows a separate move by the Trump Labor Department to try to block investors from pulling their money out of oil and gas companies.
The latest rule from the Office of the Comptroller of the Currency (OCC) requires large banks with more than $100 million in assets to adhere to a “nondiscrimination” policy that bars them from attempting to disadvantage clients in specific industries.
In justifying the rule, Acting Comptroller Brian Brooks cited “family planning organizations,” “privately owned correctional facilities,” and “makers of shotguns and hunting rifles” as examples of organizations that would be protected under the new rule. However, the rule appears to be designed to put pressure on five major banks who stopped lending to Arctic energy projects.
In June, Senator Dan Sullivan, Senator Lisa Murkowski, and Representative Don Young wrote to Brooks complaining that those banks had decided not to lend to projects in the 1002 Area of the Arctic National Wildlife Refuge.
The 1002 Area is the site of renewed controversy as the Trump administration last week moved to auction off land to oil companies looking to drill in the Arctic. The auction is scheduled to take place in January, before President-elect Joe Biden’s inauguration.
In July, Brooks wrote back to the Alaskan congressional delegation, expressing skepticism “of claims that the sector poses a ‘reputational risk’ to the banks that serve it” and promising to look into the matter. Brooks’s OCC then contacted several banks in order to “better understand their decision making.” According to the OCC, the responses indicated that several banks had stopped providing services to parts of the energy industry.
Senate Democrats previously criticized the OCC for taking the fossil fuel industry’s side, warning Brooks and other Trump administration officials to “stop pressuring banks to fund new Arctic drilling projects.”
Nevertheless, Brooks forged ahead and ultimately introduced the new proposed OCC rule. The public comment period for the rule ends in January, giving the OCC a small window of time to potentially implement the rule before Biden’s inauguration.
The rule comes days after Trump nominated Brooks to a five-year term as the comptroller. His nomination faces several obstacles: the Senate is currently in recess and the nomination comes after the Republican Senate failed to confirm Federal Reserve board member Amy Shelton. Brooks began serving as the comptroller in May after the previous comptroller, Joseph Otting, resigned after proposing new rules that would gut the Community Reinvestment Act, an anti-redlining statute.
Before serving as the comptroller of the OCC, Brooks was the former chief legal officer and vice chair of OneWest Bank, a predatory mortgage lender that was described as a foreclosure machine. Other OneWest Bank alumni in the Trump administration include Treasury Secretary Steven Mnuchin and the former comptroller, Otting. After OneWest, Brooks worked at the cryptocurrency startup Coinbase before joining the OCC.
Comptrollers typically serve for five-year terms, and the comptroller Obama nominated, Thomas Curry, served during the Trump administration until his term expired in May 2017. However, the law does allow the president to remove the comptroller, should Brooks be confirmed to the position.
As comptroller, Brooks also created rules that allow payday lenders to charge predatory interest rates, sent a letter to the United States Conference of Mayors asking them to consider the economic consequences of public health lockdown measures, and issued a letter giving banks permission to offer cryptocurrency services.
Larger Fight Over Divestment
The OCC’s new rule comes amidst a larger federal backlash against banks who are reducing their lending to fossil fuel companies.
In June, Trump’s Labor Department issued a rule that would make it more difficult for pension funds to divest themselves of fossil fuel holdings. That Trump rule was requested by fossil fuel interests, which said the divestment movement was depriving oil and gas companies of capital.
In February, Trump’s Securities and Exchange Commission refused to expand disclosure requirements for climate related risks. The two-pronged approach — keeping investors in the dark about climate risks and then blocking them from taking climate change into account — could create problems as climate change accelerates.
The OCC’s new rule comes as a welcome boost to an oil and gas industry that has been battered by the pandemic. Oil and gas companies are often poorly capitalized, and have been the largest junk bond borrowers in ten of the past eleven years.
The abundance of cheap borrowing led to increased energy production in the United States, but left companies vulnerable to economic downturns, such as in April when oil prices collapsed. There has been a surge in oil and gas bankruptcies this year.
In an introduction accompanying the rule, the OCC described oil companies as “politically controversial but lawful businesses” and compared them to family planning organizations. The OCC also questioned whether it was appropriate for banks to evaluate climate risk, describing the matter as falling under the purview of Congress and environmental regulators.
“It’s remarkable to see a Trump-appointed regulator cite seemingly progressive principles from anti-discrimination laws to the outsized economic power of the largest banks in service of preserving fossil fuel companies’ access to the banking system,” said Graham Steele, a former Senate banking committee chief counsel. But Steele also questioned whether the rule would be effective, describing it as having a “dubious legal foundation.”
“Lenders are realizing that a lot of these projects just aren’t financially viable, and no amount of government coercion is going to change that,” Steele said.