Wall Street and Democrats oppose Trump attempt to rush through tighter divestment rules for banks

A US banking regulator is facing heavy pressure from Wall Street banks and the US Democrats to drop a controversial plan to prevent banks in the country from excluding sectors such as fossil fuels or guns. 

The so-called “fair access” rule was drafted by the US Treasury’s Office of the Comptroller of the Currency (OCC) late last November, and some fear it could be rushed through by the current US Administration before President-Elect Biden’s inauguration on 20th January. A four-week consultation closed on Monday. 

Steven Rothstein, Managing Director of the Ceres Accelerator for Sustainable Capital Markets, which opposes the rule, says US regulatory agencies usually give more time for consultation. “Under a traditional Administration, you wouldn’t be reviewing 4,000 comments 15 days before the new Administration takes post,” he told RI. 

As well as preventing banks from having sector-wide lending bans, the rule would allow the OCC to “take supervisory or enforcement action” on previously-issued guidance, which states that banks should assess customers on a case-by-case basis and not “engage in the termination of entire categories of customers”. 

The House Financial Services Committee Democrats have urged the OCC to drop the rule, saying it “appears designed to ignore material risks posed by fossil energy companies, gun manufacturers and other large corporations”. 

They add that it “will increase systemic risks to the financial system, discourage corporate social responsibility, and do nothing to ensure communities of color are better served by the banking system”.

A group of Democratic senators have also slammed the rule saying: “This rule chills banks’ ability to properly incorporate climate risk, threatens systemic financial stability, and it is just another example of the Trump Administration’s willingness to implement poor policy in order to give handouts to its favored industries.”

Significantly, Wall Street banks oppose the rule, with lobby group the Bank Policy Institute saying it would “micromanage banks’ business decisions in an unprecedented way”. Members such as JP Morgan, Bank of America and Goldman Sachs have all introduced lending bans in recent years for sectors such as private prisons, coal firms and companies involved in Arctic drilling. 

These moves have been criticised by Republican lawmakers saying it is wrong and risky “to pick and choose who is favoured in the US economy”. This week, Republican Commissioner Wayne Christian, who sits on the board of the Texas’ energy regulator, launched a broadside against ESG investing and the “radical environmentalism” causing oil and gas divestment. 

If finalised by the OCC in the coming days, the new rule will fit into a trend of US agencies introducing measures, in many instances strongly opposed by market participants, seen to curb ESG. The Department of Labor passed a rule on investment fund choices recently. 

But, Rothstein points out that the OCC is moving in the opposite direction to some other US regulatory agencies: the Federal Reserve signalled its engagement with climate issues recently when it joined the central banking Network for Greening the Financial System; and the Commodity Futures Trading Commission have a heavy-hitting subcommittee on climate risk. 

“On November 5th, Chairman [of the Federal Reserve] Powell said that climate change is a material risk,” said Rothsein. “The OCC is contrary to the direction we’re heading in with so many regulatory agencies in this country, never mind around the world, where the US is clearly behind.”