Banks are clashing with regulators over loan reviews that could crimp the flow of new credit to the oil patch, according to a Wall Street Journal reported today. The dispute is focused on the relatively narrow issue of loans secured by oil and gas companies’ reserves, but it highlights the much broader point of how post-crisis regulation of the financial industry is affecting sectors far from Wall Street. On one side are the bankers who have been grappling with the plunge in oil prices and the need to shore up billions of dollars in credit extended to the energy industry. On the other are regulators eager to prevent another financial crisis while not knowing what it might be. Caught in the middle are the small- and medium-size exploration and production companies that rely on credit lines that use their energy reserves as collateral. Banks are now beginning their fall reviews of the quality of that collateral and worry regulators could ding them for making loans the banks think are prudent. The issue came to a head this month when a dozen regulators from the Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp. flew to Houston to meet with about 40 energy bankers from JPMorgan Chase & Co., Wells Fargo & Co., Bank of America Corp., Citigroup Inc. and Royal Bank of Canada. In the spring and fall, regulators conduct a review of large corporate loans shared by multiple banks. The banks were concerned because a review of their loans by regulators this spring left many reserve-based loans rated as riskier than the banks had considered them to be.
