When it comes to crude and coal, Trump ties bankers’ hands
Bankers have long prided themselves in making wise financial decisions that helped build their communities into better places to live and do business.
In the waning days of his presidency, President Donald Trump wants to take away some of the discretion banks use in making sound investments. The administration says it is leveling the playing field for all legal businesses, but the goal is to protect Texas oil and gas companies.
Today, most businesses run on credit, and the energy sector relies on banks more than most for billions of dollars in loans every year. Companies use the money to buy land or hire drilling rigs. They also rely on trading desks to buy futures contracts and investment bankers to sell stocks and bonds.
Oil executives may be handsomely rewarded, but to keep the wells pumping and the oil flowing, they rely on OPM: other people’s money. But lately, banks have scaled back loans to oil and gas companies
because they have struggled. There are other reasons, too.
Environmentalists and climate change activists understand the role of financial institutions, which is why they have encouraged investment firms and wealthy individuals to pull their money out, or divest, from fossil fuel companies. They’ve also pressured banks to stop providing loans and other services.
Their argument is simple. Climate change is damaging the economy, and banks hurt themselves and their clients when they support companies that cause global warming.
The campaign is working better than anyone could have expected. Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley andWells Fargo have announced plans to cut off funding for new drilling in the Arctic. Some have stopped funding coal projects, while others have taken more substantial steps.
This is terrible news for Trump, who promised to save the coal industry and opened the Arctic to more drilling. No one will bid on leases in the Arctic NationalWildlife Refuge if they cannot secure project funding.
The Office of the Comptroller of the Currency, a banking regulator that Trump oversees, doesn’t think the banks are playing fair. The agency wants to remove the banks’ flexibility in deciding which businesses to support.
“Politically controversial but lawful businesses” deserve “fair access to financial services under the law,” the comptroller declared in a shockingly credulous statement announcing the rule. Brian Brooks, the acting comptroller of the currency, told several news outlets that his proposal would also protect family planning centers, gunmakers, private prisons and any number of controversial businesses with whom banks refuse to do business.
Bankers would have to demonstrate they use “quantitative, impartial risk-based standards” when making lending decisions, the comptroller proposed.
Consider the implications for the globe, our nation or even your neighborhood. Banks could not legally decline to finance a new coal-fired plant upwind from a major city.
A bank’s shareholders could not insist that their corporation avoid doing business with a privately-owned prison company known for violating human rights. A banker could be forced to loan money to assault rifle manufacturers, even if she had lost a loved one in a school shooting.
Banks would be required to mindlessly follow a standardized formula with little or no concern for community standards.
Liberals are obviously outraged at the prospect of losing one of their most effective tools for demanding change—the economic boycott. But conservatives should be equally appalled by the government’s attempt to dictate how someone operates his or her business.
Free-market capitalists should oppose this government overreach because the market is perfectly capable of solving this problem. If investing in a controversial business will generate a profit, someone will provide the capital required and pocket the reward.
If a bank’s shareholders and executive team want to forsake those profits by not doing business with a controversial industry, that is their loss to take. The Office of the Comptroller of the Currency should not interfere.
Conservatives should oppose the rule because it opens a new avenue for costly litigation. Too many companies will decide to file lawsuits to force banks to loan them money, even if they are high-risk.
The proposed rule is the latest in Trump’s attempts to force the financial services industry to support fossil fuels. In July, Trump’s Labor Secretary Eugene Scalia proposed a rule that would forbid retirement account managers from avoiding fossil fuel companies in the name of sustainable investing.
I expect Democrats to use regulations to bend society to their will; they do not trust markets to find the best solutions. But when Republicans use the rulebook to give their allies a leg up and, in so doing, distort markets and liberty, the hypocrisy feels all the more distasteful.