Fed to tighten bank com­mod­ity

The Myanmar Times - - International Business -

THE US Fed­eral Re­serve has pro­posed new reg­u­la­tions that would re­strict banks’ trad­ing and in­vest­ments in phys­i­cal com­modi­ties in an ef­fort to limit en­vi­ron­men­tal and other risks to fi­nan­cial sta­bil­ity.

US reg­u­la­tors have pointed to the 2010 Deep­wa­ter Hori­zon oil spill – in which an off­shore oil rig ex­ploded, touch­ing off an en­vi­ron­men­tal dis­as­ter that re­sulted in bil­lions of dol­lars in fines to mul­ti­ple com­pa­nies in­volved – as an ex­am­ple of the risks that com­modi­ties in­vest­ment can pose to fi­nan­cial in­sti­tu­tions.

Un­der the new rules, the in­vest­ment banks Goldman Sachs and Morgan Stan­ley, which un­like other banks are al­lowed to in­vest in ex­tract­ing, trans­port­ing and stor­ing phys­i­cal com­modi­ties, would face height­ened cap­i­tal re­quire­ments for such ac­tiv­i­ties.

Other banks which en­gage in com­modi­ties trad­ing that ex­tends to phys­i­cal com­modi­ties – such as oil fu­tures con­tracts set­tled in oil and not cash – would also be re­quired to de­vote higher cap­i­tal re­serves to back­ing the deals.

The rules would cap the amount of com­modi­ties in which banks may in­vest. They also re-clas­sify cop­per as an in­dus­trial rather than pre­cious metal, re­mov­ing it from the list of met­als that banks can own and store.

US reg­u­la­tors have shown in­creas­ing con­cern with banks’ in­volve­ment in the com­mod­ity and en­ergy sec­tors. The Fed’s pro­posed rules are open to a 90-day com­ment pe­riod be­fore fi­nal im­ple­men­ta­tion.

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