Fed wants to put new lim­its on banks’ com­modi­ties ac­tiv­i­ties

Jamaica Gleaner - - BUSINESS - – AP

THE UNITED States Fed­eral Re­serve wants to put new lim­its on big banks’ ac­tiv­i­ties in phys­i­cal com­modi­ties busi­nesses, with an eye to re­duc­ing fi­nan­cial risks from volatile trad­ing and trans­port of sen­si­tive ma­te­ri­als.

The Fed’s gov­er­nors are propos­ing re­stric­tions for banks’ hold­ing, trans­port­ing and trad­ing of com­modi­ties like oil, alu­minium, and coal. Banks would be re­quired to beef up the cap­i­tal they hold against po­ten­tial losses in com­modi­ties and would face lim­its on the amount of their com­modi­ties trad­ing.

The Fed is open­ing the pro­posal to pub­lic com­ment for 90 days.

Wall Street banks have sharply re­duced their in­volve­ment in phys­i­cal com­modi­ties in re­cent years, un­der pres­sure from reg­u­la­tors and law­mak­ers. The big­gest play­ers in the field have been Gold­man Sachs and Mor­gan Stan­ley.

PO­TEN­TIAL RISKS

Reg­u­la­tors say dis­as­ters like the mas­sive 2010 oil spill in the Gulf of Mex­ico show the po­ten­tial risks to banks. Though that ac­ci­dent only af­fected BP and the oil-ser­vice com­pa­nies in­volved, banks that en­gage in trans­port of oil in tankers could take heavy fi­nan­cial hits, the reg­u­la­tors say.

Also, crit­ics of Wall Street say that own­ing and stor­ing com­modi­ties like alu­minium in ware­houses or oil in stor­age tankers en­ables banks to drive up prices for ba­sic prod­ucts made from them – like gaso­lene, canned soft drinks, and beer, and elec­tric­ity.

“As a gen­eral mat­ter, (ma­jor banks) should be pro­hib­ited from own­ing phys­i­cal as­sets like ware­houses, pipelines, and tankers,” Demo­cratic Sen­a­tors Sher­rod Brown of Ohio and El­iz­a­beth War­ren of Mas­sachusetts have told the Fed.

The pro­posed new re­quire­ments would mean banks would have to salt away up to $4 bil­lion in ad­di­tional cap­i­tal, Fed of­fi­cials es­ti­mate.

In ad­di­tion, banks would no longer be al­lowed to en­gage in phys­i­cal ac­tiv­i­ties in­volv­ing power plants. Banks no longer could own and store cop­per, be­cause reg­u­la­tors now deem cop­per to be an in­dus­trial metal rather than a pre­cious metal like gold and sil­ver. In this Thurs­day, Septem­ber 22, 2016, still im­age from video, a test drone mak­ing a UPS de­liv­ery lands on Chil­dren’s Is­land in Mar­ble­head, Mass. UPS part­nered with ro­bot-maker CyPhy Works to fly the drone on a programmed route for three miles over the At­lantic Ocean to make the de­liv­ery.

AP

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