With support from the University of Richmond

History News Network

History News Network puts current events into historical perspective. Subscribe to our newsletter for new perspectives on the ways history continues to resonate in the present. Explore our archive of thousands of original op-eds and curated stories from around the web. Join us to learn more about the past, now.

Can Activists Use Banking Regulations to Force Decarbonization?

Historically the federal government has done very little to push banks to address climate risk in the financial system. The last major wave of environmental legislation passed in the 1960s and 1970s, when banks were nowhere near as big as they are now. Back then, the primary targets of anti-pollution laws were corporations that were actively generating emissions or had dumped toxic waste that needed to be cleaned up. This made sense, given that manufacturing and chemical firms were still at the top of the Fortune 500 list in 1977, while financial firms were not. Banks simply did not receive the same scrutiny as firms in the industrial sector.

Changes in the banking sector over the past half-century have produced dramatic consolidation, making a handful of big banks outsize financial engines in the fossil fuel industry. So long as these large banks and financial firms continue funding major fossil fuel development, environmental activists argue, addressing climate change will be impossible. And policymakers are now beginning to heed their calls.

Prodded into action by a growing grass-roots environmental movement, Congress passed several pieces of momentous environmental legislation in the 1970s. Lawmakers enacted the Clean Air Act in 1970, with the Clean Water Act following in 1972. These laws gave federal agencies, such as the Environmental Protection Agency — which had been created in 1970 — wide authority to regulate air pollution coming out of factories and effluent coming out of company pipes. Other laws such as the Superfund Act of 1980 and the Clean Air Act Amendments of 1990 broadened the authority of federal regulators and pressured polluting firms to do better.

Yet, much of this legislation came before seismic changes in the banking industry that would eventually impact the environment. Before the 1970s, the 1927 McFadden Act essentially prevented commercial banks from opening retail branches in multiple states. But by the time President Ronald Reagan came into office in 1981, states had begun negotiating regional compacts that allowed for some interstate branch banking. Then, in 1994, President Bill Clinton signed the Riegle-Neal Interstate Banking and Branching Efficiency Act, which officially repealed federal restrictions on interstate banking. Commercial banks were now free to open new branches coast to coast — and to merge with other regional banks to create national powerhouses. They did so with gusto.

In 1999, Congress repealed provisions of the 1933 Glass-Steagall Act that had prevented investment banks, such as J.P. Morgan, from merging with commercial banks holding depositors’ money, such as Chase Manhattan Bank. A new wave of investment bank and commercial bank consolidation took place, meaning big banks gained even greater power in the American economy.

During these decades of mergers and acquisitions, America’s largest financial firms, including Bank of America and Wells Fargo, offered huge loans for fossil fuel extraction and exploration. Yet, while environmentalists targeted oil companies and coal firms in their climate change campaigns in the 1980s and 1990s, the banks that were financing these businesses received little attention from activists or government regulators.

That changed in the early 2000s, when environmentalists began to reason that the best way to address the climate crisis was to center activism on the few big banks that now controlled a tremendous percentage of the capital financing for fossil fuel enterprises. By directing their limited resources at the largest financial firms, environmental groups hoped to sever investment arteries that provided financial lifeblood to fossil fuel firms.

The Rainforest Action Network (RAN) led the way, initiating its first wave of big bank protests in the early 2000s. The organization focused on Citigroup, and then JPMorgan Chase and Bank of America, with the goal of trying to stop the flow of money before it reached companies and factories contributing to climate change.

Read entire article at Made By History at the Washington Post