"Worried Fed seeks to curb Wall Street banks commodity trade" [View all]

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Worried Fed seeks to curb Wall Street banks commodity trade

By Anna Louie Sussman and Emily Stephenson at Reuters

http://www.reuters.com/article/2014/01/14/us-banks-commodities-fed-idUSBREA0C1OG20140114

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(Reuters) - The U.S. Federal Reserve on Tuesday took a first formal step toward restricting the role of Wall Street banks in trading physical commodities, citing fears that a multibillion-dollar disaster could bring down a bank and imperil the stability of the financial system.

The Fed board voted to publish its concerns and potential remedies following months of growing public and political pressure to check banks' decade-long expansion into the commodities supply chain. The Fed also questioned the initial rationale for allowing them to trade and invest in risky raw materials and lease oil tanks or own power plants.

The Fed "expect(s) to engage in additional rulemaking in this area," according to prepared remarks of Michael Gibson, the Fed's director of bank supervision and regulation, to a U.S. Senate banking committee hearing on Wednesday.

The new rules could include a cap on total assets or revenues from such trading, increased capital or insurance, or prohibitions on holding certain types of commodities "that pose undue risk."



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