Why OCC ‘Fair Access to Financial Services’ proposed rule is a win-lose

The OCC’s “Fair Access to Financial Services” rule, proposed Nov. 20, would prohibit the nation’s largest banks—those with at least $100 billion in assets—and federal savings associations from denying financing to any “politically controversial but lawful businesses,” absent an objective, quantifiable risk-based analysis established by the bank in advance. The intent is to stop banks from refusing to do business with customers due to personal beliefs or politically motivated or legal reasons alone, which banks increasingly have come under pressure from shareholders and advocacy groups to do.

“Bank actions based on these criteria are inconsistent with a bank’s legal responsibility to provide fair access to financial services,” the proposed rule states. To support its argument, the OCC lists several controversial businesses banks are being pressured to boycott, like oil and gas companies, family planning organizations, and gun manufacturers.

On its face, the argument behind the proposed rule is understandable and fair, but enacting a rule to enforce it isn’t the best way to achieve a “win/win”—an optimal result for all parties involved. When I first read the rule, it immediately brought to my mind a quote from Stephen Covey’s book, “The 7 Habits of Highly Effective People”:

“Win/Win means that agreements or solutions are mutually beneficial, mutually satisfying. With a Win/Win solution, all parties feel good about the decision and feel committed to the action plan. Win/Win sees life as a cooperative, not a competitive arena.”

The OCC’s proposed rule is not a win/win, and here’s why: It places all the responsibility upon banks to significantly risk-adjust their practices and assume all legal and reputational risk while signaling that none of that same responsibility nor risk-adjustment obligations should be placed on the other party as well. The mere act of proposing such a blanket regulatory response assumes banking customers are the only victims.

The oil and gas industry, to cite just one example, inherently brings with it a significant amount of risk: volatile oil and gas prices; inability to find replacement reserves; increased risk of deeper offshore drilling due to depleting reserves; and more choices in alternative energy sources, to list just a few. If banks are going to assume the risks of an entire industry that increasingly is less and less financially viable, isn’t it only reasonable for an oil and gas company—and any other high-risk banking customer—to have a similar obligation to explain how it’s counteracting its risks?

Worse yet, the “Fair Access to Financial Services” rule inherently proposes a win/lose authoritarian approach (citing Covey’s words) by proposing supervisory or enforcement action by the OCC as a solution. How can true cooperation be achieved when the solution being proposed is essentially to pit banking customers against the banks with which they want to do business?

That brings me to my final point: Why can’t bank executives sit in a room with potential high-risk business customers and hash out their respective concerns, the risks they each face, and come to a viable mutually beneficial business relationship? Why does the solution have to be to force them to come together via a government mandate?

And to that point, I’ll end on another quote of Covey’s: “Certainly, we need law or else society will deteriorate. It provides survival but it doesn’t create synergy. At best it results in compromise. Law is based on an adversarial concept.”

Comments on the proposed rule must be received on or before Jan. 4, 2021.