In one of the last executive actions of the Trump administration, the Office of the Comptroller of the Currency published an important final “Fair Access to Financial Services” rule requiring that large banks and federal savings associations make lending decisions based upon “individualized, quantitative risk-based analysis and management of customer risk.” Translation: The lenders are not to make such decisions on the basis of the political unpopularity (among leftists) of certain businesses, obvious examples of which are producers of fossil fuels or firearms, operators of for-profit colleges or private prisons, and payday lenders, and perhaps others engaged in entirely legal business activities.
Under that finalized rule, such politicized lending criteria as “reputational risk”---a wholly circular construct devoid of analytic content---were to be excluded as determinants of the allocation of capital. This constraint would enhance the productivity of financial capital by both lenders and borrowers, by making economic value the central driver of lending decisions and the use of borrowed funds. The strengthened role of economic value would help to preserve the soundness of the banking/financial system, and more generally would engender a number of aggregate economic benefits flowing from the strengthening of economic factors and the weakening of political factors in the capital market.
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