WASHINGTON- A leading U.S. bank regulator finalized a rule Thursday that prohibits large banks from refusing to lend to certain business sectors, after Republicans voiced frustration at what they saw as a reluctance by banks to finance gun makers and energy firms.

The rule, proposed in November by the U.S. Comptroller of the Currency, has been fiercely contested by banks which call it unworkable and politically motivated. It applies to banks with more than $100 billion in assets and stipulates that they must show legitimate business reasons for not providing services to certain borrowers. 

The rule, pushed by Comptroller Brian Brooks, had been encouraged by some Republicans frustrated by banks' refusal to lend to certain types of businesses, such as gun manufacturers and oil and gas companies.

Instead, Brooks said banks must evaluate each applicant on the merits, and the rule would prohibit any blanket prohibition.

"It is inconsistent with basic principles of prudent risk management to make decisions based solely on conclusory or categorical assertions of risk without actual analysis," said Brooks in a statement. "Moreover, elected officials should determine what is legal and illegal in our country."

The OCC finalized the rule on Brooks's last day at the agency.

The last-minute rule has been met broad condemnation, with consumer groups, Democrats and the banking industry in rare alignment in opposition. Banks say the rule takes away their ability to make business decisions for themselves, and places it in the hands of the government.

Banks are expected to push the incoming administration of President-elect Joe Biden and Democrats to find a way to repeal the rule, and have suggested they could challenge it in court.

(Reporting by Pete Schroeder; Editing by Jason Neely and Edmund Blair) ((Pete.Schroeder@thomsonreuters.com; 202-310-5485;))