CFTC’s Bailout of Capital One Sets a Dangerous Precedent

The public should not pay for banks’ risky bets on oil and gas 

Washington, DC — The Commodity Futures Trading Commission’s (CFTC) decision to grant Capital One a waiver for its commodity swaps with oil and gas companies sets a dangerous precedent, according to members of Stop the Money Pipeline, a coalition of organizations aimed at ending the financing of climate destruction.

“This is a public bailout for a big bank’s risky bets on oil and gas,” said Jamie Henn, with the Stop the Money Pipeline coalition. “With 3 million Americans already filing for unemployment due to the coronavirus outbreak, the federal government should be prioritizing support for people, not polluters. Banks need to know that there is no more backstop for their dangerous gambles in the oil and gas sector.” 

According to reporting by Reuters, the CFTC stepped in to grant Capital One a waiver on its commodity swaps with oil and gas companies “after plunging oil prices increased the bank’s derivatives exposure above a key regulatory threshold.” While it may prove costly, there is no evidence that Capital One’s commodity swaps threaten the overall stability of the bank: energy loans account for just 1.4% of its total loan book. 

“In this case, Capital One has been left holding the bag, but there must also be accountability for the banks that are doing the most to inject fossil risk into the financial system,” said Jason Opeña Disterhoft, climate and energy senior campaigner with Rainforest Action Network. “This is a problem that will only spread: JPMorgan Chase is the number one fossil bank in the world by a huge margin. It’s responsible for more than a quarter trillion dollars of fossil finance since Paris — at $269 billion in lending and underwriting to fossil fuel companies over 2016-9, that’s 36% more than Wells Fargo in second place. Citi and Bank of America round out an all-American top four. The current crisis has also underlined how risky fracking capital is — and JPMorgan Chase is the number one fracking bank in the world, by a 40% margin.”

While it would be easy to blame the collapse of the oil sector on the coronavirus or the Saudi-Russia price war, experts suggest that these events were simply the straws that broke a stumbling camel’s back. Oil and gas was the worst performing sector of the market for 2019 and the entire decade before. Many domestic oil and gas producers have never posted profits, while racking up enormous debts. Last July, the former CEO of EQT, which in 2017 was the nation’s largest producer of natural gas, called the shale gas revolution an “unmitigated disaster” for investors. This January, CNBC’s Jim Cramer made headlines when he said oil stocks were in their “death knell” phase. 

The message from the Stop the Money Pipeline coalition is clear: the CFTC, the Federal Reserve, and other government agencies shouldn’t be rewarding banks, insurance companies or asset managers for their risky bets on fossil fuels, especially after a decade of clear warnings about the risks those investments posed to the economy and climate. The response to COVID-19 needs to decrease climate risk, not increase it. That means no bailouts for coal, oil and gas companies and the financial institutions backing them without an express commitment to a fossil fuel phaseout. 

“Now is not the time to relax rules on financial institutions’ ability to weather future crises, particularly the climate crisis, the impacts of which continue to unfold even as we deal with COVID-19. Instead, policymakers should be bolstering the resilience of the financial system to safely handle future climate shocks us by requiring banks, asset managers, and other financial institutions to responsibly phase out financing and investments in fossil fuels and transition to a green economy,” said Moira Birss, Climate and Finance Director, Amazon Watch. 

Over the coming weeks, Stop the Money Pipeline will be joining with allies across the progressive movement to push for greater oversight of how the Fed and other government agencies are distributing bailout money. 

This April, the coalition is joining with youth climate strike leaders for three days of climate action around Earth Day. The theme of the second day, Thursday, April 23, is “divest,” during which actions will focus on pressuring the government, banks, insurance companies, asset managers, and institutional investors to end the financing of fossil fuels. 

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