22 Jul 2013
Fed reviewing rules that allow bank to own commodity assets
FXstreet.com (Barcelona) - The U.S. Federal Reserve is carrying out a review on a 2003 decision which allows regulated investment banks to trade in physical commodity markets, in news announced last Friday.
The move has raised speculation over the implications this may have in financial markets, with sectors of the investment community suspecting the decision of removing these banks from trading the psychical metals may panic Wall Street.
As Reuters notes: "While it is well known that the Fed is considering whether or not to allow banks including Morgan Stanley and JPMorgan to continue owning trading assets like oil storage tanks or metals warehouses, Friday's one-sentence statement suggests that it is also reconsidering the full scope of banks' activities in physical markets, which help generate billions in profits."
In an emailed statement, the Federal Reserve said: "The Federal Reserve regularly monitors the commodity activities of supervised firms and is reviewing the 2003 determination that certain commodity activities are complementary to financial activities and thus permissible for bank holding companies."
The growing scrutiny towards the dubious practices of owning psychical commodities by regulated banks comes at a time when Goldman Sachs has taken center stage once again due to an aluminium scandal with the aim to artificially inflate the price of the metal.
On Tuesday, the Senate Banking Committee is holding the first hearing on the controversial subject, where questions will be asked about whether or not banks should continue to be granted permission to own power plants, warehouses and other commodity-related assets such as oil refineries.
Quoted by Reuters, Senator Sherrod Brown, a Democrat from Ohio, said in a statement: "Reviewing Wall Street's expansion into commercial activities is essential. Congress, regulators, and the public need to understand what has happened in the 14 years since the financial floodgates were opened, and reconsider what we want banks to do."
The move has raised speculation over the implications this may have in financial markets, with sectors of the investment community suspecting the decision of removing these banks from trading the psychical metals may panic Wall Street.
As Reuters notes: "While it is well known that the Fed is considering whether or not to allow banks including Morgan Stanley and JPMorgan to continue owning trading assets like oil storage tanks or metals warehouses, Friday's one-sentence statement suggests that it is also reconsidering the full scope of banks' activities in physical markets, which help generate billions in profits."
In an emailed statement, the Federal Reserve said: "The Federal Reserve regularly monitors the commodity activities of supervised firms and is reviewing the 2003 determination that certain commodity activities are complementary to financial activities and thus permissible for bank holding companies."
The growing scrutiny towards the dubious practices of owning psychical commodities by regulated banks comes at a time when Goldman Sachs has taken center stage once again due to an aluminium scandal with the aim to artificially inflate the price of the metal.
On Tuesday, the Senate Banking Committee is holding the first hearing on the controversial subject, where questions will be asked about whether or not banks should continue to be granted permission to own power plants, warehouses and other commodity-related assets such as oil refineries.
Quoted by Reuters, Senator Sherrod Brown, a Democrat from Ohio, said in a statement: "Reviewing Wall Street's expansion into commercial activities is essential. Congress, regulators, and the public need to understand what has happened in the 14 years since the financial floodgates were opened, and reconsider what we want banks to do."