December 20, 2019

Crapo, Colleagues Raise Concerns with Discrimination in Lending

Urge regulators to prevent “Operation Choke Point” scenarios

WASHINGTON – U.S. Senator Mike Crapo (R-Idaho), Chairman of the Senate Banking Committee, joined fellow senators in sending the following letter to federal financial regulators regarding “Operation Choke Point” and discrimination in bank lending, generally.   

“Operation Choke Point was an Obama-era initiative in which federal agencies devised and relied upon a list of politically disfavored merchant categories with the intent of choking-off these merchants’ access to payment systems and banking services,” said Chairman Crapo.  “Now, we are seeing a disturbing trend in the financial services industry—the intentional discrimination of entire industries by the largest banks in the United States.  Business lending decisions should be based on creditworthiness, rather than politics or political pressure.” 

In the letter, the senators raise concerns about the trend of the largest banks denying services to entire industries to curry favor of partisan interest groups under the guise of “derisking” their business.  They highlight that banks receive certain advantages, including implicit and explicit taxpayer subsidies, in exchange for a mandate to serve the credit needs of the entirety of their communities, and stress concerns about the use of power from an increasingly concentrated industry to discriminate against law abiding citizens.  The senators urge banks to focus on profit and safety and soundness, and to not target industries, especially those having a meaningful benefit in rural communities, based on the values of a few executives. Finally, they ask the banking agencies to respond to several questions related to the their processes for evaluating banks’ lending practices, the potential effect on rural communities and how these concerns may be addressed as a part of the Community Reinvestment Act modernization. 

Senator Crapo has raised similar issues with the banking regulators and financial institutions in the past.  

Click here for the signed letter.

Full text of the letter is below. 

December 20th, 2019




Mr. Joseph M. Otting                                                     Ms. Jelena McWilliams

Comptroller of the Currency                                           Chairwoman of the Board of Directors

Office of the Comptroller of the Currency                     Federal Deposit Insurance Corporation

400 7th Street SW                                                            550 17th Street NW

Washington, DC 20219                                                  Washington, DC 20429


Mr. Randal K. Quarles

Vice-Chair of Supervision

Board of Governors of the Federal Reserve System

Marriner S. Eccles Federal Reserve Board Building

2051 Constitution Avenue NW

Washington, DC 20418


Dear Comptroller Otting, Vice-Chair Quarles, and Chairwoman McWilliams:

             We are writing to you regarding a disturbing trend in the financial services industry, the intentional discrimination of entire industries by the largest banks in the United States. Over the past few years, one after another, the largest banks in the United States have steadily “derisked” from industries such as firearm manufacturers, private prison services, and fossil fuel producers. Ostensibly, these actions are to “derisk” from a threat to their safety and soundness, but according to the public statements of the banks and their executives, these actions are mainly designed to curry favor with partisan interest groups. Whether it is climate change, immigration policy, or gun ownership, these are divisive issues that are best left to our electoral process. 

            As firm believers in the free market, we believe private companies have the freedom to choose how to execute their business plans. After all, the desire for bank executives to maximize shareholders’ economic value and the attractiveness of the bank’s services to customers should be the major determinants for commercial success. However, the banking industry does not operate in a strictly free market. The banking industry is highly restrictive marketplace with high barriers for entry. Within these memberships, they also enjoy both implicit and explicit taxpayer subsidies. For example, as a lesson of the Great Depression and the banking panic that occurred, the FDIC provides taxpayer-funded deposit insurance to every depository bank. The Federal Reserve provides access to the discount window exclusively to banks within its system. This year, banks within the Federal Reserve System will receive nearly $20 billion in interest on the $1.38 trillion in reserves held in excess of their capital requirements. Finally, beyond the direct subsidies, there remains an implicit guarantee that the government will bailout the globally systemically important banks (G-SIBs) if they fall into financial distress. The Dodd-Frank Act did not solve “too big to fail”, and the greater complexities in the post-financial crisis regulations benefited the larger banks as economies of scale made it possible for them to absorb the technology investments and compliance costs that the community banks could never afford.

We are not writing to start a discussion on the worthiness of these subsidies. Surely, previous Congresses would not have provided these implicit and explicit subsidies if they did not have economic benefits to our country as a whole, but banks receive certain advantages over non-banks in exchange for a mandate to serve the credit needs of the entirety of their communities including low and middle income neighborhoods. Mergers and acquisitions require prudential regulatory approval even when there is no anti-trust implications, and laws such as the Community Reinvestment Act highlight the relationship between the government and banks. As bank consolidation shrinks the number of banks, we do worry if there is sufficient choice in the marketplace and whether or not this new concentration of power is used in a discriminatory fashion against law abiding citizens.

The center of our complaint rests with the largest banks in the U.S. The largest 6 banks in the U.S are all considered globally systemically important banks (“G-SIB”) and between them hold nearly as much deposits as the remaining 5,000+ financial institutions combined. This concentration increases in more sophisticated services such as leverage finance, mergesr & acquisitions, and capital markets. An example of how this can impact average Americans is on the issue of 2nd amendment rights. Despite the fact that their clout is due to their government-provided protections, if banks continue their hostile treatment of gun manufacturers, suppliers, and stores, banks have the ability to deprive Americans of a constitutional right.

            Banks should focus on the twin pillars of profitability and safety and soundness. It is not in the taxpayers’ interest for Congress to mandate banks to adopt risky practices. Congressional mandates helped to contribute to the last financial crisis as the desire to increase homeownership created perverse incentives and poor underwriting standards. However, the “derisking” happening today is targeted at industries that pose no risk to a bank’s safety and soundness and there is a clear body of evidence that the banks are withholding services explicitly to effectuate social change. We are particularly offended that they have targeted industries and companies predominately located in our rural communities. Often times these industries are the largest and best paying employers within the region and withholding banking services to them is effectively withholding banking services to the entire community. We reject the notion that the New York values of a handful of banking executives and asset managers can hold our constituents hostage and force them to sacrifice their beliefs.  

Therefore, we appreciate if you address the following questions:

1.      When a bank chooses to use alternative criteria beyond creditworthiness and direct risks to safety and soundness, do they in fact generate risk in their lending practices?

 2.      More sophisticated banking services such as securities underwriting and treasury management services have been now concentrated to a small number of banks in this country, what steps do prudential regulators have to take to ensure that these services are extended based strictly on an economic calculus and not based on social preferences? 

 3.      Since the targeting of certain industries based on social concerns have nearly all been concentrated at industries whose primary workforce are located in mostly rural communities, what types of challenges does this present for access to banking services in rural communities?

 4.      As mentioned before, the government grants banks certain privileges and protections to improve the stability of our country’s financial system. Do banks that discriminate against entire segments of our country deserve the taxpayer-funded subsidies?

 5.      As you move forward on bringing the Community Reinvestment Act into the 21st century, how can you address the concerns we have raised in this letter?