Last minute rules – time to be alert

In the last days of any US presidency, the potential for efforts to limit the flexibility of the following administration exists. So it is not surprising that the Office of the Comptroller of the Currency (OCC) is busy proposing a new rule that would make it difficult for banks to stop supporting fossil fuel activities. The proposal reads rather straightforward in the language announcing the proposal.  It states “that banks should provide access to services, capital, and credit based on the risk assessment of individual customers, rather than broad-based decisions affecting whole categories or classes of customers.” But as always the devil is in the details.

Going to the more detailed release in the Federal Register, gives much more insight into the special pleading (from swamp creatures perhaps) that is behind the proposal. As noted in this more detailed announcement: “over the course of 2019 and 2020, . . . banks had decided to cease providing financial services to one or more major energy industry categories, including coal mining, coal-fired electricity generation, and/or oil exploration in the Arctic region.” It goes on to note: “)i)t is one thing for a bank not to lend to oil companies because it lacks the expertise to value or manage the associated collateral rights; it is another for a bank to make that decision because it believes the United States should abide by the standards set in an international climate treaty.”

Therefore it is a clear aim of this rule to prohibit banks from taking decisions on providing banking services consistent with achieving the goals of the Paris Climate Accord. There is clearly a dilemma for both banks and the OCC in the balance between providing banking services on a non-discriminatory basis and meeting demands from stakeholders including large investors for banks to be responsible relative to climate change which will create substantial economic disruption. But it seems to me that the key issue in the proposal is an attempt by the OCC to force banks to continue to lend into the carbon economy forcing private banks to support a policy that is self destructive.

The proposal is in a comment period until 4 January. Will it survive and be approved prior to the change in administration on 20 January? Clearly an area needing attention from all concerned about climate change.