OCC oversteps its authority in trying to force banks to take on controversial customers

A US banking regulator that glories in the splendidly anachronistic name the of the Office of the Comptroller of the Currency (OCC) has ruled that nine banks, including two Canadian banks, are guilty of practices and policies that denied or limited access to financial services because of political or religious beliefs. 

Canada's Toronto Dominion Bank and the Bank of Montreal were among the nine, which also included many of the heavy hitters in American banking like JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, US Bancorp and Capital One.

The review was demanded, predictably enough, by Donald Trump, and, predictably enough, he received the answer he wanted. No penalties were announced for the perceived transgressions, but the OCC say they are "assessing further regulatory and supervisory changes" to prevent these issues from happening again.

So, what kind of thing are we talking about here? Who is being discriminated against and denied access to their rights? 

Well, as you might imagine, they are almost all on the right fringes of the Republican Party. Examples include a non-profit espousing extreme anti-abortion views, a company producing MAGA merchandise, that kind of thing. In some cases, particular industry sectors are involved, like oil and gas exploration, coal mining and coal-powered plants, firearms and ammunition manufacturing, digital asset activities, etc, which contravene the banks' own ethical policies. It apparently amounts to a tiny number of individuals and companies ("a limited number of historical interactions") out of the many millions of accounts the banks maintain.

From the banks' point of view, though, in distancing themselves from some of the more controversial loan applicants, they are just trying to manage their legal, financial and reputational risk, which they are well within their rights to do.

The OCC's "irrefutable evidence" that the banks have "denied, debanked and discriminated against customers and lawful businesses", then, seems to tar the banks with a very broad brush, and ignores their own right to pick their customers and protect their own corporate brands. If anything, you could argue that the report merely reflects the political stance of the OCC (or maybe Mr. Trump).

The OCC contends that banks are using the concept of reputational risk as a shield to deny services to customers based on subjective, non-financial criteria. The banks, on the other hand, argue that managing reputational risk is a critical part of safe and sound operations. A potential client's public persona or controversial industry ties can lead to concrete legal, compliance and financial liabilities. Banks should not be forced to take on relationships with risky or controversial customers they do not trust.