Banks face pressure for firearms industry decisions

Boise’s Wells Fargo Center. Wells Fargo has reiterated its support for firearms manufacturers, as other banks move away from clients that make and sell military-style weapons. File photo.

Idaho Sen. Mike Crapo, chairman of the Senate Banking Committee, has criticized two banks for corporate decisions limiting firearms in the wake of incidents such as February’s shooting at a school in Parkland, Florida.

In a March 22 blog post, Citigroup Inc. announced that it would require new retail sector clients not to sell firearms to someone who hasn’t passed a background check, to restrict the sale of firearms for individuals under 21 years of age, and not to sell bump stocks or high-capacity magazines.

Bank of America made a similar statement. “We want to contribute in any way we can to reduce these mass shootings,” said Anne Finucane, Bank of America vice chairman, in an interview on Bloomberg. While the bank did have a few clients that manufacture military-style firearms, it was having discussions with those vendors and it was not the bank’s intent to underwrite or finance such products in the future, she said.

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Idaho Sen. Mike Crapo

In response, Crapo wrote to each of the two institutions criticizing them for their actions. “I am concerned when government agencies use their power to try to cut off financial services for lawful businesses they may disfavor,” he wrote. “I am also concerned when large national banks use their market power for similar purposes.”

Neither Bank of America nor Citigroup would comment on Crapo’s letter.

Some other national banks have also examined their relationships with firearms companies in recent months.  “We do have robust risk management practices and policies associated with this and we have had for a number of years,” said Marianne Lake, chief financial officer at JPMorgan Chase in a recent earnings call, responding to a question about financing military-style weapon for non-military purposes. “We continue to always refine them and work on them.  As a result, our exposures have come down significantly and are pretty limited.”

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Julie Fogerson

Other banks, most notably Wells Fargo, have reiterated their support of firearms manufacturers. “Firearms manufacturers are among the hundreds of different industries that Wells Fargo banks,” said Julie Fogerson, assistant vice president of Idaho regional communications at Wells Fargo, in Boise. ”We have a strict due diligence process that monitors our customer’s adherence to all state and federal laws in order to be a customer of the bank. Wells Fargo wants schools and communities to be safe from gun violence, but changes to laws and regulations should be determined through a legislative process that gives the American public an opportunity to participate and not be arbitrarily set by a bank.”

Financial institutions with more of an Idaho regional presence steered clear of the issue, with Idaho Central Credit Union, First Interstate Bank, and Zions Bank representatives all saying they had no comment. “Credit unions that are members of the NWCUA make their own determinations about the products and services that they offer, based on the needs of their members and their local communities,” said Lynn Heider, vice president of public relations for the Northwest Credit Union Association, which represents Idaho credit unions after its merger with the Idaho Credit Union League.

“Zions avoids taking a stance on political issues outside of the financial services industry, believing that it is best that the appropriate legislative body set policy,” said Rob Brough, Zions Bank executive vice president. “Zions strives to bank customers who obey the law and who have a risk profile that is consistent with Zions’ standards.”

Crapo’s letters criticized banks for using “their market power to manage social policy by withholding access to credit to customers and companies they disfavor.” Over time, banks have made other decisions that influence social policy, such as investing in renewable energy (which Crapo also criticized).

In addition, the federal government has also put restrictions on banks that could be said to influence social policy. Most notable was the Obama administration’s Operation Choke Point, intended to discourage banks from doing business with companies ranging from payday lenders to gun retailers. While that program ended in August, some industries reportedly still find it difficult to find banks that support them, such as the marijuana industry in states where that is legal, noted the Brookings Institution. More broadly speaking, legislation such as the Community Reinvestment Act, which guides banks’ philanthropic efforts, could also be characterized as an attempt to effect social policy. Crapo’s office wouldn’t comment on the senator’s opinion about banking and social policy issues other than firearms.

Some organizations are also taking steps to pressure banks to change their firearms policies. For example, on a national level, the Sierra Club is asking supporters to tell Wells Fargo to stop funding gunmakers, as well as oil pipeline companies.

In response to incidents such as Parkland, several retailers have decided to limit firearms sales.

Crapo bill could help Idaho community banks

The U.S. Capitol building.
The U.S. Capitol building. Idaho Sen. Mike Crapo has put forth a bill that would make more capital available for community banks in rural areas. File photo.

A national banking bill put forth by Idaho’s Sen. Mike Crapo could pay big benefits back home, according to community bankers.

The bill, S.2155, is intended to roll back some Dodd-Frank compliance restrictions that were put into place in 2010. The Senate Banking Committee passed it on Dec. 5. It is expected to go to the full Senate by late February or early March, said Bill Cooney, senior vice president for Congressional relations for the Independent Community Bankers of America (ICBA), a trade association that represents more than 5700 community banks, including many in Idaho. Assuming the Senate passes it, it will go to the House. ICBA is encouraging the House to pass the Senate bill, because the body has already debated and passed a number of the provisions in S.2155, he said.

If the bill passes, the result could be more available capital for community banks in rural areas, including Idaho. “Tailoring regulations to better reflect a financial institution’s size and business model will allow them to free up resources that can be better used serving customers,” said Amanda Critchfield, spokesperson for Crapo, who chairs the committee. “This might mean more product offerings, loan approvals, credit, or mortgages.”

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Troy Stang

Small local financial institutions agreed. “[Crapo] has taken what he has heard in the field from institutions and been able to translate it into some real common-sense financial reform,” said Troy Stang, president and CEO of the Northwest Credit Union Association, a credit union advocacy group based in Tigard, Oregon, with offices in SeaTac, Washington, and Boise. The NWCUA recently agreed to merge with the Idaho Credit Union League.

As an example, today small banks need to consider small multifamily units for real estate loans as business loans, while large Wall Street banks would consider them residential loans, Stang said. S.2155 recharacterizes dwellings of up to four units as real estate loans. “Main Street Idaho will have more dollars to lend in their business portfolios, with real access to capital,” he said. “Communities will feel the difference.”

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Amanda Critchfield

Dodd-Frank was a reaction to the 2008 recession and some of the practices of Wall Street firms that brought it on, but it went too far, Stang said. “There were unintended consequences, one of which was too many restraints on local community institutions,” he said. “There were the same compliance expectations of Wall Street banks as of a local community institution. The only difference is, local institutions don’t have rows of cubicles of attorneys to deal with the compliance burden.”

For example, Dodd-Frank doubled the amount of data that banks had to collect to offer a loan, from 24 data fields to 48, covering demographic areas such as sex and race, Cooney said. The Crapo bill says that banks that originate fewer than 500 loans per year are exempt from the new data requirements. “Community banks don’t discriminate against borrowers,” he said. “If they were discriminating against female applicants or minority applicants, they wouldn’t be in business very long.” Dodd-Frank also implemented more stringent capital requirements, which would be rolled back for community banks under S.2155, he said.

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Bill Cooney
Critics of the bill say it doesn’t really address the problems community banks face, and at the same time it takes away tools from regulators. “The relief it promises to small community banks is premised first on the notion that small banks are suffering due to the Dodd-Frank Act,” wrote Ed Mierzwinski, federal consumer program director and senior fellow for the Federation of State Public Interest Research Groups (U.S. PIRG), in December. “In fact, the consolidation in the industry, though widely blamed on Dodd-Frank, was not caused by the act. According to Federal Reserve economists, bank consolidation has been occurring at a steady pace since at least 1984.”

Cooney disagreed. “It does not destroy Dodd-Frank,” he said. “It merely creates surgical exemptions for community banks and small credit unions. This really is a community banking regulatory relief bill.”