Trump's acting comptroller produces laughable bank regulation

One of the dying gasps of the Trump administration is a proposed regulation sought by Alaska’s Congressional delegation that purports to force banks to make loans to support Arctic oil investment even if the banks want to put their money elsewhere.

A Georgetown law professor says the Trump plan reflects a basic misunderstanding of federal law and the powers of the Comptroller of the Currency, featuring “legal theories so farfetched that would be laughed out of a courtroom if it actually tried to act on them.”

Sen. Dan Sullivan, Sen. Lisa Murkowski and Rep. Don Young put their names on a letter in June to Brian Brooks, who had all of two weeks experience as acting comptroller, alleging a pattern of discrimination against oil companies.

"These overtly political policies, ostensibly based on 'reputational risk,' unfairly target potential oil and gas operations in Alaska,” the trio complained.

Brooks responded in July with a letter “that can only be described as verging on legal malpractice in the service of political expediency while pushing a vision of economic regulation that looks like Communist China,” according to Georgetown Law Professor Adam Levitin, an expert on banking and finance law.

In a thorough post in August on the Credit Slips blog, Levitin dismantled the claims by Brooks and the idea that the government should force banks to loan to favored industries.

The points in the letter are about the same as those in the background information with the regulation proposed Friday. Brooks claims that the comptroller, a bureau in the treasury department, can require “fair access” to banking services under an old section of federal law, 12 USC 1.

Levitin said the relevant section of the law describes the general purpose of the comptroller’s office.

“It's not even a ‘be excellent to each other’ sort of exhortation. It is not by any stretch a provision creating any substantive rights or obligations. If OCC tried to use this as the basis for a ‘fair access’ rulemaking, as Brooks suggests, the rulemaking would get thrown out by a court on an APA (Administrative Procedure Act) challenge in a hot minute. 12 USC 1 authorizes the OCC to do precisely nothing,” Levitin said.

“Whatever 12 USC 1 is, it is not a roving commission for the OCC to undertake rulemakings about ‘fair access’ and ‘fair treatment,’ etc. It is not a free-standing authorization to undertake any sort of rulemaking. It is very plainly not a delegation by Congress.”

He said the claim that decisions by banks to deny loans to the oil and gas sector is somehow a violation of that law is laughable.

“12 USC 1 is at most an obligation on the OCC, not on banks. It's embarrassing to see the OCC put forth such a legal argument.”

Last month, Daniel Stipano, deputy chief counsel of the OCC from 2000 to 2016, confirmed Levitin’s analysis. He told the Wall Street Journal that the fair access provision applies to the OCC, not to lending institutions.

“Because financial institutions' decisions to curtail lending don't necessarily violate the statute, the OCC is limited in its ability to push banks to provide credit to certain industries or projects, Mr. Stipano said.”

The lack of capital from major banks is one of the many factors that has diminished the prospects for a big-dollar lease sale in the Arctic National Wildlife Refuge, another last-gasp of the dying administration.

In a statement with its proposed regulation, the OCC said it surveyed banks about their refusal to support Arctic oil and gas operations and certain other energy projects.

“The responses received indicate that, over the course of 2019 and 2020, these 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. The terminated services were not limited to lending, where risk factors might justify not serving a particular client (e.g., when a bank lacked the expertise to evaluate the collateral value of mineral rights in a particular region or because of a bank’s concern about commodity price volatility). Instead, certain banks indicated that they were also terminating advisory and other services that are unconnected to credit or operational risk. In several instances, the banks indicated that they intend only to make exceptions when benchmarks unrelated to financial risk are met, such as whether the country in which a project is located has committed to international climate agreements and whether the project controls carbon emissions sufficiently.”

In other words, private banks are making decisions about how best to operate their businesses based on many factors.

The Trump OCC claims, however, that “Neither the OCC nor banks are well-equipped to balance risks unrelated to financial exposures and the operations required to deliver financial services.”

That’s not right. It’s up to the banks to balance all the risks. It’s certainly not up to a guy who is soon to be the former acting Comptroller of the Currency.

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