Banks serve a vital role in our economy. We lend money. Part of the government’s job is to regulate industries in various capacities, which is needed within reason. However, it is preposterous to think that our federal government will use banks as puppets to be the bad guys to regulate something that banks have no business doing. Banks shouldn’t take the fall for doing the job of the government. It’s twisted and wrong!
In March of this year, the FDIC proposed a Statement of Principles for Climate-Related Financial Risk Management for Large Financial Institutions. This set of recommendations encourages large banks (over $100B in assets) to track climate-related risks that may impact their business and the economy. While these principles are simply guidance at this point, most believe they will eventually become the rule.
Like most things with the government, it boils down to politics. The issue of climate change has been highly politicized over the years. Some believe the planet is in imminent danger, others think the whole idea is a hoax, and most people fall somewhere between those two ends of a very long spectrum. This issue isn’t about climate change, much to the chagrin of our elected officials. It’s about banks being forced to do the government’s job.
Regulations like these will make it more difficult for banks to lend to industries the government deems environmentally harmful. Currently, the recommendations are directed toward large banks with $100B+ in assets. Still, it’s reasonable to believe that any future regulations that stem from it will also extend to smaller banks. Presumably, they will start by limiting banks’ ability to lend to companies that deal in oil, fracking, and other companies deemed climate unsafe, but where does it end?
I’m sick and tired of banks being portrayed as the bad guys. Imagine you own a company and a majority of your employees had to commute 45 minutes each way to get to work, own a trucking company that has hundreds of big rigs on the road at a given time, or raise cattle whose methane gas contributes to greenhouse gases. What’s to keep the government from extending the threshold on their carbon footprint regulations to any industry at all? Nothing, but even more so than those scenarios, banks get singled out. It’s wrong!
I’m all for taking better care of the environment, but I don’t believe the banking sector should be responsible for regulating industries about which the government cannot agree on regulations. The CEO of PNC bank, Bill Demchak, said it best when he was quoted, “The political football that has become banking, as a way to somehow cause social change, because our politicians don’t have the backbone to actually do what they want to do, or be out loud about it, is bulls—.”
The banking industry shouldn’t be held solely responsible for regulating issues that the officials in government can’t even agree on. The impacts of these potential regulations on $100B banks will pale in comparison to how they will affect small community banks for whom maintaining relationships with all types of companies is essential for their long-term viability. There’s no telling where these regulations will land in the coming months and years, but I feel confident that banks should not be responsible for policing them.
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