Big U.S. banks have long refused to lend to coal miners that use a mountaintop removal technique. Wells Fargo says such lending because it recognizes the “elevated community concerns associated with the practice.”
Should banks like Wells Fargo be allowed to stop lending to an industry because of its impact on the environment or its lack of commitment to social justice? Doesn’t Wells Fargo have an obligation to be neutral?
This is the issue at the heart of a recent proposed by Brian Brooks, acting head of the Office of the Comptroller of the Currency, or OCC, a key U.S. bank regulator. Brooks and OCC Chief Economist Charles Calamoris want from “politically driven discrimination.” Their rule would prevent bankers from using anything other than regular credit and operational criteria for evaluating a company seeking financial services.
The upshot? Wells Fargo would have to re-bank coal miners that practice mountaintop removal. Banks would also be required to restart lending to oil companies involved in exploring Alaska’s North Slope, a practice the likes of Wells Fargo, Citigroup and JPMorgan Chase have to avoid. Nor would they be allowed to cave in to activists who call for account closures of groups they don’t like, say, like Planned Parenthood.
I disagree with the OCC’s proposed rule. The underlying motivations are good ones, especially in context of Operation Choke Point (see below). But I don’t think the U.S. needs it. It’s ironic that, in trying to depoliticize the banking system, the OCC is likely precluding greater diversity in service providers.
Operation Choke Point was an Obama-era program that tried to from the banking system. In 2011 the Federal Deposit Insurance Corporation, or FDIC, a federal government body that supervises and examines U.S. banks, placed a number of perfectly legal business categories on its “high-risk” list.
One of these was payday lending, an industry that is often maligned for preying on a poor clientele. Internal FDIC emails to “get at payday lending” and to “find a way to stop our banks from facilitating payday lending.”
After several payday lenders for violating their due process rights (the OCC’s Calomiris provided expert testimony), FDIC agreed to settle the dispute. The regulator that “certain employees acted in a manner inconsistent with FDIC policies” and reiterating that carrying out its responsibilities rests on “laws and regulations, not on personal beliefs or political motivations.” And thus Operation Choke Point was .
I think everyone can agree that Operation Choke Point was reprehensible. The core regulatory and central banking layers of the financial system stay must stay neutral. No matter what sorts of legal businesses banks choose as their customers, every bank should be granted equal access to the Federal Reserve’s core payments tools. Nor should FDIC officials be able to use its examination powers to favor businesses.
The problem with the OCC’s new fair access rule is that it has a huge blast radius. Yes, it would prevent future government-run choke points. But it would unnecessarily damage efforts by banks to shape their brands in ways that are designed to satisfy emerging consumer tastes.
The 21st century consumer wants to know more about the provenance of the things they buy. We don’t just want tuna, we want dolphin-friendly tuna. We don’t just want coffee, we want fair trade coffee. And we don’t want our T-shirts to be made in sweatshops with Xinjiang-grown cotton. We want ethical T-shirts.