The rule of equitable access to banking services
Eakinomics: the rule of equitable access to banking services
In line with the general rush of the Trump administration midnight rule, Acting Currency Controller Brian Brooks on his last day of work finalized a rule preventing big banks from denying loans and other services to entire sectors. The poster child for such behavior would, for example, be denying banking services to all private prisons or all fossil fuel companies.
Specifically, the rule applies to banks with assets of $ 100 billion or more and, according to Brooks, “banks should not terminate services to entire categories of customers without performing individual risk assessments. It is incompatible with the basic principles of prudent risk management to make decisions based solely on conclusive or categorical statements of risk without actual analysis. In addition, elected officials should determine what is legal and illegal in our country. “
It’s safe to say the big banks weren’t amused. The Bank Policy Institute released a statement saying, “We are disappointed that the Interim Supervisor chose to expedite final approval of this hastily designed and poorly constructed rule on his last day in office. The rule lacks both logic and legal basis, it ignores the basic facts about how the bank works, and it will compromise the safety and soundness of the banks to which it applies. Its substantive problems are only offset by the glaring procedural failures of the rule-making process, and for these reasons, it is unlikely to withstand scrutiny. “
How should we think about the fair access rule? A warning flag is that the rule only applies to the largest banks. Why should small banks be able to choose their customers and not the big ones? Isn’t the objective to have equitable access to banking services, and not equitable access to the services of the big banks?
A second concern is that the rule is unnecessary. It would not be possible for a big bank to simply say “We are no longer lending to the coal companies”. But it would be possible to undertake an “individual risk assessment” of each coal company and conclude that the market risk posed by the production of natural gas and the political risk posed by the climate objectives of the new administration make the risk of loss. ‘a dangerously high loan.
Taken together, these elements suggest that the rule is poorly targeted and unlikely to change an actual model of service delivery. Instead, all consequences are likely to be unforeseen, and that’s never a good thing.