A growing number of U.S. and Canadian regional banks are rapidly increasing their presence in the oil, gas, and coal financing market, reshaping the landscape for fossil fuel dealmaking. As major European banks retreat from financing fossil fuel projects due to regulatory pressure, North American regional banks are stepping in to fill the gap, leading to a significant shift in the industry.
Among the banks gaining prominence is Texas Capital Bank, which has seen considerable growth in its fossil fuel financing activities over the past two and a half years, according to data compiled by Bloomberg. Other banks making similar gains include Truist Securities Inc., FHN Financial, Cadence Bank, BOK Financial Corp., and Canadian Western Bank. These institutions have climbed between 17 and 46 places in the global rankings of lenders based on the number of oil, gas, and coal transactions since the end of 2021. They now rank among the top 50 lenders worldwide for fossil fuel dealmaking.
Marc Graham, head of energy at Texas Capital Bank, described the bank’s strategy as being like a “treadmill,” with a constant focus on adding new clients in the oil and gas sector. He highlighted the retreat of European banks such as UBS Group AG and ABN Amro Bank NV as a key factor changing the competitive landscape. “We don’t compete against European banks anymore,” Graham said in a recent interview.
This trend is not limited to Texas Capital. North American regional banks across the board are expanding their footprint in the fossil fuel sector, driven in part by Europe’s regulatory environment. Climate-related regulations have pushed Europe’s largest banks to step back from services like lending, bond underwriting, and trade finance for oil, gas, and coal clients. As a result, fossil fuel companies have found new sources of finance with relative ease in the North American banking sector.
A spokesperson for ABN Amro acknowledged this trend, while UBS declined to comment. Representatives from FHN Financial, Truist, and Cadence also declined to comment, and Canadian Western Bank did not respond to requests for comment.
Marisol Salazar, senior vice president and energy banking manager at BOK Financial, emphasized that regional banks are “active and hungry” for new fossil fuel deals. Both she and Graham pointed to a period of consolidation in the U.S. oil and gas industry as a driver of client and deal turnover. Additionally, declining interest rates have spurred demand for credit, with fossil fuel companies now able to access financing at rates of 6% to 8%, Salazar noted.
The rise of North American regional banks in financing fossil fuels represents a “serious change for the industry,” according to Max Falkenberg, a visiting research fellow at University College London’s Institute for Sustainable Resources. Falkenberg, who has studied banking networks in the fossil fuel sector, expressed concern that smaller regional banks generally face less stringent prudential regulations than their larger, systemically important peers. He added that recent regulatory developments in the U.S. have led to even fewer capital requirements for smaller lenders, with some likely to be entirely exempt from key regulatory demands.
Falkenberg also warned that the decentralization of fossil fuel financing from major banks to smaller regional institutions makes it more challenging to prevent the flow of capital into the sector. “The more we see this decentralization of the sector away from the largest banks toward small banks, it’ll just become harder and harder to prevent this substitution of capital when a bank decides to exit the sector,” he said.
While European banks like BNP Paribas SA and ING Groep NV have reduced their exposure to fossil fuel financing, North American banks—both regional and major—are taking a different approach. Wells Fargo, JPMorgan Chase, and Bank of America have remained among the top lenders for fossil fuels, according to Bloomberg data. Meanwhile, fossil fuel companies are increasingly gaining access to financing from outside the traditional banking sector.
In some cases, banks themselves are helping fossil fuel companies tap into alternative sources of capital, such as private credit or public debt markets. Graham noted that Texas Capital Bank is building a model that educates clients on other financing options beyond traditional bank loans. “We’ll use the bank’s balance sheet to facilitate acquisitions, but then we educate clients on all the other sources of capital that are available to them,” he said. These options include private credit term loans, publicly traded debt, and public or private equity.
While these alternative financing options can come with higher costs for clients, they also offer more flexible and patient sources of capital, Graham explained. Other financing structures that banks are using include securitization models typically associated with mortgage bonds, with oil and gas wells serving as collateral instead of homes.
A study co-authored by Falkenberg highlights the growing involvement of large Canadian and Japanese banks in the fossil fuel sector. Institutions such as Scotiabank, BMO Capital Markets, Sumitomo Mitsui Financial Group, Mitsubishi UFJ Financial Group, and Mizuho Bank have all increased their average annual lending to fossil fuel companies. The study, published in Nature Communications, found that despite the Paris Agreement of 2016, there has been no overall decline in fossil fuel lending, partly due to the “substitution effect” of capital from smaller lenders.
In conclusion, while some major European banks are pulling out of the fossil fuel sector, the rise of North American regional banks is offsetting these moves. Without global regulations to curb this substitution effect, Falkenberg cautions that there will likely be little positive impact on reducing fossil fuel financing at the project level.
