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The Federal Reserve may review the permission granted to banking majors who engage in trading of physical commodities such as oil and metals and impose curbs on their operations. This has caused apprehensions among th..

30 Oct 2013

WASHINGTON (Commodity Online): Several major banks involved in commodities business would find the going tough following the Federal Reserve move to regulate the bsuiness and impose new capital charges, according to news reports.

The Federal Reserve may review the permission granted to banking majors who engage in trading of physical commodities such as oil and metals and impose curbs on their operations. This has caused apprehensions among the banking community-- Citigroup, Barclays, JPMorgan, Goldman Sachs being some of them.

"The issue of banks' decade-long expansion into commodities hit the mainstream this summer after big aluminum buyers represented by MillerCoors — the second largest U.S. brewer — complained in a U.S. Senate hearing that some banks drove up the cost of supplies through their control of metal warehouses," a Reuters report said.

Meanwhile, there appears to be a move to impose a new capital surcharge on Wall Street banks who own pipelines, metals warehouse and other physical commodity assets. Fed believes that commodities ownership by banks have gone beyond what was originally envisaged when permission was given to such insitutitions a decade ag.

"To avoid a regulatory situation where only some banks can own commodities, the Fed is considering a surcharge that would ensure all banks hold more capital to account for potential risks posed by the assets they own or lease," a Wall Street Journal report said.

However, curtailing the commodity business of Goldman Sachs and Morgan Stanley may not be easy as it was originally given under the 1999 Gramm-Leach-Bliley law.The two banks, which converted from investment banks to bank-holding companies during the 2008 financial crisis, are allowed to continue owning or investing in physical commodities as long as they were doing so before October 1997 and the businesses don't total more than 5% of their total assets.

Rabobank Chairman resigns

Rabobank Chairman Piet Moerland resigned after a settlememnt of EUR 774 mn with various European authorities for its role in the historical Libor and Euribor scandal.

‘On behalf of the Bank and the Executive Board I want to send a very clear signal: a sincere apology and strong condemnation of these inappropriate acts. I have decided to resign.'




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