The Impact of Environmental Regulation on Commerical Lending
Doshi, Nina S.
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The Environmental Protection Agency was created to control the toxic pollutants that were of major concern in the 1970's. They implemented various laws to control this situation that affected all sectors of society. These regulations had a large impact on the business environment. One of the groups that was deeply affected by these laws was the banking industry. This paper traces those laws that have a direct effect on commercial lending and how these regulations changed lending policies to reduce environmental risk. Section I of this paper provides general information on the commercial credit environment. In particular it explains the three lending objectives that the lenders follow before proceeding with a loan. Banks try to provide loans that are beneficial to the bank, to the customer, and to the community. Low risk and profitability are the key tools that lenders use in all types of loans. Section II of this paper examines the various environmental regulations that affects the banking industry. In particular, Resource Conservation & Recovery Act (RCRA), the Comprehensive Environmental Response Compensation & Liability Act (CERCLA), and Superfund Amendments and Reauthorization Act (SARA) will be carefully analyzed. Section m explains the impact of these environmental regulations. In particular, the Fleet Factors Case will be analyzed to show the impact this case had on the banking industry. Section IV reviews the recent environmental regulations that provides some relief for commercial lenders. Michigan's Act 307 is mentioned to explain the environmental regulations on the state level. Section V of this paper contains NBD's new lending policies that must be followed when dealing with loans that may have potential environmental contamination. These guidelines must be carried through to reduce the bank's environmental risk. Section VI shows the costs associated with these environmental procedures. Various examples are analyzed to show the costs associated with cleaning up a contaminated site. Section VII analyzes the effect of these environmental regulations. This section examines the banker's argument on whether lenders should provide loans to companies with environmental risk. It also analyzes EPA's failure on Superfund due to money being wasted on lawsuits instead of cleaning up contaminated sites. Section VIII summarizes the impact of environmental regulations on commercial lending. This section ties the other sections together as it points out the relevant issues pertaining to environmental regulation. Section IX reflects my internship at NBD in Benton Harbor. I explain the tickler system that I created to keep track of the personal financial statements. I also describe my projects on the environmental requirements and the loan officer site inspection. I was unable to include the actual projects in my WESIP as this information is confidential. Section X is a summary of how my internship at NBD has affected my future career plans.