Bank of America, Citigroup restrict loans to the gun industry so Texas is taking

Bank of America and Citigroup, the top two underwriters in the $3.9 trillion municipal bond market, are at risk of getting shut out of Texas because of a push by Republican state lawmakers to punish the banks for their restrictive gun policies.

The legislation, Senate Bill 19, would block government entities from contracting with banks and other financial services providers that have policies that restrict business with the firearms industry. Under the bill, companies with 10 employees or more seeking a government contract worth at least $100,000 would have to verify in writing that they do not have a policy or directive that “discriminates” against the firearms or ammunition industries.

It’s targeted at large banks and financial institutions that have attempted to “use financial pressure to infringe upon our Second Amendment rights,” according to a statement from the sponsors in an analysis of the bill.

The legislation is in flux: it already passed the state Senate and is pending in the Texas House of Representatives.

While a House companion bill includes language that would exempt debt sales and the “deposit or investment of funds,” the author in that chamber didn’t pursue adding that exemption in the Senate version.

“Any company that uses financial pressure in order to limit Texans’ ability to purchase guns or ammunition should not be tolerated,” Sen. Charles Schwertner, an author of the legislation, said in a committee hearing on the bill earlier this month.

The Texas move to punish the banks comes as Republicans nationally have criticized companies for stepping into politics. Senate Minority Leader Mitch McConnell said corporate executives should “stay out of politics” in response to the backlash against a Georgia law that limits voting access.

If the Senate version is enacted, the law could hurt the banks’ municipal underwriting businesses in Texas, a huge market for state and local debt deals. Texas-based borrowers sold more than $58 billion of bonds in 2020, the second-most of any state behind California, according to data compiled by Bloomberg. As part of bond offerings, borrowers often hire banks ahead of time and pay them a fee for underwriting the sales.

Elizabeth Reich, chief financial officer of the city of Dallas, said the bill could have wide-ranging impacts on the city, including limiting competition for its debt sales. The bill could also affect banking relationships: Dallas had $257 million in deposits with Bank of America at the end of February, she said.

“If I’m limited in who I can do business with and talk to and engage with, that’s going to raise my costs and increase the cost to the taxpayers,” she said.

The banks announced policies that set restrictions on the firearms industry in 2018 after a shooting at Marjory Stoneman Douglas High School in Parkland, Florida, left 17 people dead. Citigroup said it would prohibit retailers that are customers of the bank from offering bump stocks or selling guns to people who haven’t passed a background check or are younger than 21.

Bank of America also announced in 2018 it would stop making new loans to companies that make military-style rifles for civilian use. Its policy came after dozens of employees lost family members or suffered other trauma related to mass shootings in the past few years.

Gun-friendly Texas has become important to the National Rifle Association, which filed for bankruptcy protection this year and said it would move to the state. In an article this month, the Institute for Legislative Action, an NRA lobbying arm, celebrated “pro-Second Amendment” legislation in Texas, including the legislation targeting the banks.

It’s unclear how wide-reaching the law would be, and there could be further changes to the language. The legislation would affect governmental entities, which Texas government code defines as state agencies, as well as political subdivisions like counties, municipalities and school…