This article originally appeared in Forbes on June 16, 2020.
Is it ever proper for banks to play politics with their financial assets? The answer is a resounding “No.” You would think that with almost one-third of the nation unemployed and businesses of all sizes suffering, banks – particularly Goldman Sachs, Citibank and Morgan Stanley – would stay true to their fiduciary responsibility. Recently, both firms announced that they would not finance any oil and gas exploration and development in the northernmost part of Alaska. That revelation drew the ire of Alaska Senator Dan Sullivan, whose state already has a remarkable record of extracting oil and protecting the environment of the area.
Concerns about banks going down this path was addressed on April 28th by nineteen members of the U.S. Senate in a letter to Treasury Secretary Steve Mnuchin, as well as the Federal Reserve Board and the head of the U.S. Small Business Administration. In their letter they explain that a “vocal but small minority has weaponized federally-backed banks against politically disfavored businesses” and that they “find it extremely disconcerting that, while the vast majority of SBA program lenders do not promote financial discrimination policies, many of the nation’s largest institutions currently do.”
This was preceded by legislation proposed by U.S. Senator Marco Rubio to fight back against political discrimination by mega banks backed by the U.S. Government. Rubio’s Financial Discrimination of Industrial Contractors (FDIC) Act would prevent banks with $50 billion in assets and larger from receiving taxpayer funded loan guarantees if they deny loans to legitimate American companies. As Senator Rubio explains, banks that discriminate “shouldn’t enjoy taxpayer-provided guarantees if they are undermining the public policy of the United States.”
These lawmakers have good reason to be concerned about the potential of banks withholding financing to make political statements. As federally chartered institutions, banks enjoy government guarantees and U.S. taxpayer support. They don’t operate in a free market, meaning it’s entirely inappropriate for them to discriminate against lawful businesses for political reasons. If banks want to take such political actions, they should forfeit their support and guarantees from American taxpayers.
The U.S. Congress has not outlawed oil and gas companies in the U.S., or for that matter, tobacco companies, gun manufacturers, car companies that build fossil fuel vehicles, private prison companies, or even companies that do business in the West Bank of Israel. In fact, Congress voted to open a portion of the Arctic National Wildlife Refuge to drilling in 2017. Thus, what big Wall Street investment banks are doing is taking US Government assistance in one hand and directly countermanding U.S. law with the other.
Unfortunately, these banks are not just manipulating lending – they are also targeting the Paycheck Protection Program meant to help all American businesses get back on their feet in the wake of the coronavirus crisis. As all states face the toughest of times for their citizens since the great depression of the 1930s, is this really the time to violate fiduciary duty and play politics with bank assets and policies? Both Congress and the Executive Branch should take swift action to ensure that federal relief programs like the Paycheck Protection Program do not become pawns in a dangerous game of discrimination being played by some banks.