Fed rethinks physical commodity trade

Jul 21 2013, 00:10 IST
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SummaryThe US Federal Reserve is “reviewing” a landmark 2003 decision that first allowed regulated banks to trade in physical commodity markets, it said on Friday.

The US Federal Reserve is “reviewing” a landmark 2003 decision that first allowed regulated banks to trade in physical commodity markets, it said on Friday.

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. “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 Federal Reserve said in a mailed statement. It is the Fed's first public statement on the issue since it first came to light in a Reuters report in 2012.

The statement comes amid growing political and consumer scrutiny of Wall Street's role in commodity markets amid complaints about ownership of metals warehouses and record fines against Barclays and potentially JPMorgan over allegations that they manipulated US power markets.

On Tuesday the Senate banking committee is holding its first hearing on the issue, asking if banks should be allowed to control power plants, warehouses and oil refineries.

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