Senate Democrats Skewer Big Banks’ Commodity Activities, Regulatory-Agency Competence
The Senate Banking Financial Institutions Subcommittee today convened a widely-heralded hearing sharply questioning bank physical-commodity activities, with the inquiry also bringing considerable – and negative – attention to broader bank trading in the commodity sector and asset-management operations. As public scrutiny grew late last week, the FRB issued a one-sentence statement indicating that it will re-examine the 2003 decision that precipitated physical-commodity activity in BHCs that has become still larger and more direct in intervening years. Chairman Brown (D-OH) was highly critical of bank involvement in an array of trading arenas, going beyond aluminum warehouses also to focus on electricity, oil and pending copper-related ETFs. In this report, FedFin analyzes a hearing that, while we do not expect it to lead to legislative action, will put significant pressure on the FRB and other regulators to revisit prior decisions related to bank physical-commodity activities. To make sure, Sen. Brown signaled he will hold another hearing in September. At most immediate risk are grandfathered BHC activities that face divestiture deadlines in September, but a set of new rules and/or activity constraints related to BHC and ETF activities may also be proposed. It is unclear if the OCC will review precious-metal activity within national banks, but FedFin anticipates Congressional pressure on it soon to do so.
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