Big banks back down

Under scrutiny for redlining against the Arctic for oil and gas investments

Steve Sutherlin

Petroleum News

In December, the Goldman Sachs Group Inc. announced it would decline to finance any new Arctic oil exploration or development. Over the ensuing months, major U.S. and international banks jumped aboard the bandwagon.

The banks include JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Swiss bank UBS.

But now the tune has changed, and as the wagon careens into federal scrutiny, some players have stopped tooting their horns and would like to disembark, U.S. Sen. Dan Sullivan, R-Alaska, said in keynote remarks to the Resource Development Council Aug. 27.

“I’ve called a lot of the chairmen and CEOs of these banks; the good news is some - some of the biggest - are not gonna follow suit,” Sullivan said.

The band of banks thought the collaboration would play well with climate change activists, but the ensemble struck sour notes with federal banking regulators.

Sullivan said he has been “reaching out to each one of those regulators saying, hey, these banks ... I read the law; I read the Community Reinvestment Act; I don’t think they’re allowed to do this.”

Sullivan said “the Office of the Comptroller of the Currency wrote me back and said, ‘Senator we agree, and we’re going to investigate all these big banks and what they’re doing in terms of discriminating against your state and the North Slope.’”

“I share your concerns” about decisions by certain financial institutions to stop lending to new oil and gas projects in the Arctic, acting Comptroller of the Currency Brian P. Brooks said in a July 24 letter to Sullivan. The OCC letter was in response to a June 16 letter from Alaska’s congressional delegation to the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corp.

“As requested, the OCC will take a serious look at these banks’ actions,” Brooks said. “The OCC intends to seek additional information from the banks involved to understand the rationale for these decisions as well as their effect on our national economy and local communities.”

Brooks said the OCC would analyze whether the banks have violated any duty or obligation under federal laws.

“For example, 12 U.S.C. § 1(a) requires the OCC to ensure that banks provide ‘fair access’ to financial services,” Brooks said. “Decisions by major banks to deny the oil and gas sector, among other targeted industries, access to financial services may violate that statute.”

“I had hoped that the banking industry’s experience with, and the eventual discrediting of, Operation Chokepoint would be a sufficient object lesson about the perils of discriminating against businesses that, while unpopular to some, are nevertheless legal for all and demanded by many in our market economy,” Brooks said. “Unfortunately, your letter suggests that that may not have been the case.”

American Banker said the Obama-era U.S. Department of Justice initiative Operation Choke Point exceeded legal limits, adding that overwhelming evidence proved government officials illegally targeted lawful businesses in an ideological crusade based on personal disdain.

The operation sought to choke off access to the banking system for businesses engaging in “high-risk activity.”

A 2011 FDIC guidance document ran a chart of targeted business categories including “dating services and escort services,” “drug paraphernalia,” “Ponzi schemes,” “racist materials,” “coin dealers,” “firearm sales” and “payday loans.”

Following investigation by the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, the Trump DOJ announced in August 2017 that Operation Choke Point “is no longer in effect and will not be undertaken again.”

The OCC has not yet reached a conclusion of its analysis of bank actions with regard to oil industry lending in the Arctic, OCC Deputy Comptroller for Public Affairs Bryan Hubbard told Petroleum News Sept. 1.

“This may be a matter of developing issues,” he said.

Brooks said the OCC will examine the possibility of issuing regulations defining fair access, to provide clarity to banks and customers.

“The OCC will assess our options for affirmative steps to ensure our Federal banking system continues to serve our national economy by providing fair access to all legal businesses,” he said.

Continued risk to Alaska’s economy

“It’s time to counterpunch and bring pressure to these banks, in the way that they’ve only gotten pressure from the radical extreme environmental groups and their allies in the Congress,” he said. “Some of those banks have local branches in our state; we need to pressure them.”

Arctic oil and gas development has foes in Congress.

“Unfortunately, in the U.S. Senate over one-third of the Senate Democrats wrote all these banks telling them not to invest in Alaska,” Sullivan said. “Trust me, I had a heart-to-heart with each one of those Democratic senators saying, ‘really, how would you like it if I was to do that to your state? In one of the more impoverished portions of your state?’”

The North Slope and the Northwest Arctic continue to be listed on the U.S. Federal Reserve “List of Distressed or Underserved Nonmetropolitan Middle-Income Geographies,” effective June 1, 2020.

The listing - based upon poverty, unemployment, population loss, rural status, and distressed or underserved status - points to communities eligible for protection from unfair or discriminatory lending practices under the Community Reinvestment Act.

Morgan Stanley said in a statement that its Arctic oil and gas ban considerations include impacts on local communities and indigenous peoples, while Goldman Sachs listed stakeholder engagement and consultation with indigenous peoples as core business principles.

North Slope Borough Mayor Harry Brower, however, in a Jan. 24 Wall Street Journal op-ed, said those stated principles rang hollow.

“No one will be more affected by Goldman Sachs’s decision than the people of Alaska’s North Slope, yet we learned about it in the media,” Brower said.

“Largely because of the oil and gas under our lands, which are developed using the highest environmental standards, we have come far,” Brower said. “My biggest fear is that we will be set back in our quest - this time by those who claim to care about us but are using my lands and my people as symbols for a larger political goal.”

Brower said oil production has funded nearby high schools and cutting-edge medical clinics.

“We can heat our homes, turn on our lights with a flick of the switch, and in some cases we even have indoor plumbing,” he said. “We are no longer one whaling hunt from starvation.”

“We are able to eat our Native foods, practice our Native ceremonies and speak in our Native tongues,” Brower said.

We don’t need protection or judgment, he said, adding, “we need to be treated like fellow Americans.”