Banking regulator pauses rule that enraged Wall Street and climate investors


A pedestrian passes the seal of the Office of the Comptroller of the Currency (OCC) displayed outside the organization’s headquarters in Washington, D.C., U.S., on Wednesday, March 20, 2019.

Andrew Harrer | Bloomberg | Getty Images

The Office of the Comptroller of the Currency announced it has paused publication of its Fair Access to Financial Services rule, a move that it said will allow the next confirmed Comptroller of the Currency to review the final rule and the public comments the OCC received.

The rule would subject the largest banks to scrutiny when they deny services to any customer based on risk factors that cannot be quantified, such as with some environmental, social and governance risks, as well as reputational risks.

Critics, from banking trade groups to ESG investors and legal scholars said at the time of the rule’s finalization earlier this month that it was rushed, poorly reasoned, poorly written, and could be subject to legal and congressional challenges.

Approximately 35,000 public comments in response to the rule came in by the deadline of Jan 4. The rule was proposed in November and the timeline to the comment deadline was much shorter than the standard one of 60 to 90 days. The regulator, which is required to review all public comments before finalizing rules, issued it eight business days after that deadline.

“The OCC’s long-standing supervisory guidance stating that banks should avoid termination of broad categories of customers without assessing individual customer risk remains in effect,” it said in a statement on Thursday. “The decision to pause publication of the rule was an independent decision by the OCC.”

Some conservative think tanks and segments of industries that feel threatened by issues over which banks have increasingly denied services including lending — such as in energy, arms manufacturing, and agriculture — supported the rule. Critics have referred to it as the “gunmaker’s and oil drillers’ rule,” though the voices expressing support were more widespread, including for example agricultural interests worried that animal rights activists could target banks that lend to them. Cryptocurrency projects, marijuana businesses, sex workers and other niches also felt threatened and found support from groups such as the Electronic Frontier Foundation which referred to the rule’s goal as ending “financial censorship.

An OCC spokesman previously told CNBC that many critics mistake the rule as prohibiting banks from discontinuing service and credit to risky business. “That’s wrong. The proposal requires large banks to show their work and conduct objective risk assessments of individual customers regarding the provision of services consistent with previous guidance issued by the Office of the Comptroller of the Currency.”

The rule applies to the largest banks with more than $100 billion in assets that “may exert significant pricing power or influence over sectors of the national economy.”

The rule requires covered banks to make products and services available to all customers in the communities they serve, based on consideration of quantitative, impartial, risk-based standards established by the bank.

Opposition from bank trade groups was consistent since the rule was first proposed and after it was finalized.

“We are disappointed the Acting Comptroller chose to fast-track the final approval of this hastily conceived and poorly constructed rule on his last day in office. 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,” said Bank Policy Institute president and CEO Greg Baer, who represents the largest banks, in a statement earlier this month. “Its substantive problems are outweighed only by the egregious procedural failings of the rulemaking process, and for these reasons it is unlikely to withstand scrutiny.”

The American Bankers Association, which represents the broader banking industry, was worried about the risk of a broader interpretation being applied to all banks and called the rule “arbitrary and capricious” in a comment letter to the OCC filed last month, and said it lacked “clear statutory authority, its inconsistency and potential conflict with longstanding and widely accepted risk management and supervisory practice.”

ESG investors were just as harsh.

“This rule says banks should not be in the business of assessing risk. That is what banks do every day,” said Steve Rothstein, head of the Ceres Accelerator for Sustainable Capital Markets, a sustainability investment advocacy group. “The ones that do well make healthy loans, and we are seeing clearly a trend for more awareness and engagement with ESG,” he told CNBC earlier this month. “You couldn’t just say it is not a line of business you want to be in. It is an outrageous last ditch attempt. The broader issue of how we measure risk, quantify climate risk, is an important one, but this particular rule is a distraction.”


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