More regulatory angst over physical commodities and banks


Should Goldman Sachs stay in physical commodities?

Once the controversy really got hot, JPMorgan wasted no time in announcing that it would exit the business of physically storing metals commodities. The issue is alive for other banks, notably Goldman Sachs, which has taken its lumps over its controversial Metro warehousing facility in Detroit.

Reuters notes that regulators have some big decisions to make. First, the Federal Reserve must decide whether former investment banks Goldman Sachs and Morgan Stanley will "be allowed to continue owning and operating physical assets like oil pipelines and metal warehouses." Their right to own such facilities was granted via a 5-year grace period following their conversion to bank holding companies at the height of the financial crisis. That exemption recently expired.

The Fed is also expected soon to release the results of an internal review of a 2003 move to allow commercial banks to trade in physical commodities.

In addition, the Senate will hold another hearing on these issues soon.

Ahead of all this, Sifma has released a ringing endorsement of the view that banks should be able to operate in these areas. The report was authored by a team led by Daniel Yergin, a known authority in energy. The report "warned that without the ability to trade in the real raw materials themselves, banks would likely either stop providing financial services to certain areas or industries, or be forced to raise costs."

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