Fed keeps watch over the banks influence on the raw materials trade

FEDThe development of Wall Street banks as oil traders, natural gas, coal and industrial metals is under threat as the US Federal Reserve has begun to reconsider a number of marketing authorizations with physical materials issued in the last decade. In recent weeks, senior Fed officials have discussed with the managers of the banks whether to prohibit credit institutions to hold assets in physical commodities, sources said the British edition, familiar with things. Measures could put pressure on profitable niche banks like Barclays, Goldman Sachs, JPMorgan Chase and Morgan Stanley. Just 3 years ago JPMorgan as spend 1.6 billion USD to acquire units for oil, metals and coal in the world of RBS Sempra Commodities. The US regulation allows banks to trade derivatives on commodities such as futures contracts. In 2003, the Fed expanded those rights, giving permission for Citigroup’s ownership of natural oil, gas and grains as a substitute for derivative instruments. By 2008, these permits were issued to several banks and that they are subject to review at the moment.
“The Fed regularly monitor the actions of observed commodities companies and review its decision of 2003 that some activities to complement the raw financial measures and are therefore eligible for the companies that own banks”, said the US central bank.
At once a sign of growing attention to the problem is expected subcommittee in the Senate, the upper house of the US Congress to hold hearings on the participation of banks in power plants, oil refineries and storage facilities. The chairman of the Subcommittee Sherad Brown said that regulators should put in continuous and close monitoring practice for banks to hold physical commodities. “When Wall Street banks control the supply of both commodities and financial products, there are opportunities for anti-competitive behavior and manipulations”, says Brown. The bankers argue that trade in physical commodities helps to improve customer service by agreeing on prices in markets with weak trade. The company Northern Tier Energy, specialized in the processing of oil, said that a deal for the purchase of crude oil from JPMorgan “significantly reduces the size of the investment that we would have had to do to keep the oil reserves”.
Despite complaints that the prices of industrial metals have been distorted by units of wholesale banks in the Fed’s concerns about this type of materials are weaker. Although a ban on trade in raw materials is retained as an option alongside the review of the Fed, it is possible for individual materials to be introduced various restrictions, according to sources familiar with the discussions. One possibility is higher and differentiated taxes on capital. Traditionally, Goldman and Morgan Stanley are treated differently from their competitors. Of these two banks are allowed to own and trade assets like power plants and oil storage facilities – a privilege to a time before being placed under the supervision of the Fed as holding companies during the financial crisis in 2008. Other banks have to employ such devices or have them only through its divisions and must sell them to 10 years from the date of acquisition. At Morgan Stanley warned that the Fed may require it to dispose of these assets, since it is among financial holding companies under the supervision of the US central bank.

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