Texas law requiring banks to say they don’t ‘discriminate’ against guns

Four years ago, JPMorgan Chase joined some of the nation’s biggest banks in publicly distancing itself from the gun industry after a mass shooting in Parkland, Florida, left 17 people dead.

JPMorgan’s relationship with gunsmiths “has diminished significantly and is quite limited,” Marianne Lake, the bank’s then chief financial officer, told reporters. “We have strong risk management practices and policies associated with that,” she said.

The bank, along with Citigroup and other Wall Street firms, hasn’t completely shut the door on gun businesses.

In a letter sent to the Texas attorney general this month, JPMorgan, the nation’s largest bank, signaled its willingness to continue working with the firearms industry. The letter described the bank’s “long-standing business relationship” with state industry, noting that it “plans to continue such relationships in the future.”

The letter, which was sent by attorneys representing the Foley & Lardner bank on May 13, was in response to a new law in Texas that prohibits state agencies from working with any company that “discriminates” against businesses or individuals in the gun industry. A provision of the law requires banks and other professional services firms to submit written affirmations that they are in compliance with the law.

The bank’s policy “does not discriminate against or prevent it” from doing business “with any firearms entity or firearms trading association” based solely on its status as a firearms entity. firearms or firearms trade association,” the letter said.

“These business relationships are important and valuable,” added JPMorgan. Since the start of 2020, the bank has led the financing of deals that have raised $708 million for companies in the firearms industry, according to Dealogic data.

Citigroup, which restricted certain types of gun and ammunition sales with its credit and debit card systems after Parkland, filed a similar letter with the Texas attorney general in October. In it, Citi said it had “no discriminatory practice, policy, guidance, or guideline against any firearms entity or firearms trade association. fire arms”.

The stakes are high for the big banks. If a bank says it is complying with the law and proves to be against it, it could be subject to criminal prosecution. It could also be shut out of the state’s giant municipal bond market. Texas is one of the largest bond issuers in the country, and Wall Street has long offered lucrative — and relatively risk-free — fees for underwriting municipal bonds. With $50 billion in annual borrowing, Texas generated $315 million in fees last year alone for financial firms, according to Bloomberg data.

From 2015 to 2020, JPMorgan underwrote 138 Texas bond deals, raising $19 billion for the state and generating nearly $80 million in fees for the bank, according to Bloomberg data. But the bank has been barred from working for the state since the law came into force in September. This month, JPMorgan submitted a bid to underwrite a $3.4 billion utility bond issue, the largest in state history. He wouldn’t be able to get that contract until he was certified under the new law, known as SB 19.

As big business grapples with how to respond to national tragedies and impending social issues, including the debate over gun control or abortion, laws like SB 19 make it harder to take a stand. The result is a corporate tussle that is playing out across the country, as companies try to appease large employee bases and advocacy groups without alienating customers and advocates across the board. political spectrum – while trying not to go against the locals. regulations that could affect their results.

Last year, Delta Air Lines and Coca-Cola faced an intense backlash from Republican lawmakers in Georgia, where both companies are headquartered, because the companies opposed a new law of the state that makes it more difficult for people to vote. Lyft became the target of Texas officials after saying it would help employees seek abortion care in other states in response to a restrictive new law passed there.

Calls for gun control escalated last week after an 18-year-old attacked an elementary school in Uvalde, Texas. It was one of the deadliest school shootings on record in the United States.

Unlike the Parkland shooting, executives of the nation’s largest corporations, including major banks, have remained largely silent this time around.

“Banks were willing to take these anti-gun stances before the Texas law, so why aren’t they standing up now,” said Paul A. Argenti, a business professor who studies public relations and ethics. at the Tuck School of Business in Dartmouth. “There’s a shareholder governance part of this, but if you’re a CEO like Jamie Dimon at JPMorgan, you can say we’re making a decision that’s better for our profits and our company in the long run and you don’t. don’t get sued.”

The banks, for their part, said they had not changed their position since Parkland.

A Citi spokeswoman said the bank has not changed its firearms industry policies since they came into effect in March 2018. And a JPMorgan spokeswoman said: “We have been consistent in our position that we do not fund manufacturers of military equipment. style weapons for civilian use.

In its letter, which was submitted before Uvalde’s attack, JPMorgan also claimed that it views the firearms industry as “high risk,” which places its customers under greater due diligence requirements. strict.

The Texas law is the first of its kind in the country. Similar laws — described by gun industry lobbyists as FIND laws or non-discriminatory gun industry legislation — are making their way into at least 10 statehouses, including Oklahoma. and in West Virginia, according to the Giffords Law Center to Prevent Gun Violence. This year, Wyoming passed a law that allows gun companies to sue banks and other businesses that refuse to do business with them.

Some states, however, seem less willing to pass this type of gun legislation. In March, a bill that would have mandated banking services for gun companies in Arizona was blocked by Republican lawmakers who said the government should not step in to tell banks who to lend to. In Louisiana, a law similar to SB 19 passed both the State House and the Senate in 2021, but was opposed by Gov. John Bel Edwards, a Democrat.

Mark Oliva, spokesman for the National Shooting Sports Foundation, an industry trade group, said the FIND laws were needed because in recent years gun companies have increasingly seen denied services by the largest banks in the country. The group helped pass similar laws outside of Texas.

“We presented to Congress evidence from our member companies that they have been denied access to banking and access to capital, simply because they manufacture firearms, which are a legal product and the right to own them is protected by the Second Amendment. said Mr. Oliva.

He argued that Citigroup was already in violation of Texas law. “Citigroup is certified with the state and said they don’t discriminate, but you can look at their website and you can see policies on their website that say they won’t do business with industry firearms,” Mr. Oliva said.

In response to the group’s claims, the Texas Attorney General has opened an investigation into Citi’s practices. In response to the investigation, the bank said it believed it had complied with the law.

Representatives for the state attorney general and the governor did not respond to messages seeking comment.

Dru Stevenson, a professor at the South Texas College of Law in Houston who studied SB 19, called Texas and other FIND laws bad public policy. He said the laws would most likely contribute to gun proliferation and could increase borrowing costs for cities, utilities and other government agencies. He also suggested the law could have the effect of diverting more loans to gun shops and the gun industry in general as banks try to stay in compliance. JPMorgan also raised concerns about “overbroad or results-oriented interpretations” of the law.

“Banks have to think twice about turning down a gun store loan because they are required by law to justify, unlike other small business loans, why they turned it down,” Mr. Stevenson.

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