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.
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The U.S. Federal Reserve on Friday proposed a rule to limit the physical commodity activities of financial holding companies in order to help reduce catastrophic, legal and financial risks.
The proposed rule would make it more hard for banks to be involved with physical commodities by raising capital requirements.
According to the Wall Street Journal, the rules would likely hit Goldman Sachs Group Inc.
USA regulators in recent years have shown increasing concern with banks’ involvement in the commodity and energy sectors, calling on lawmakers to help limit such activities.
The Fed today begins a 90-day period of accepting public comment.
Also, critics of Wall Street say that owning and storing commodities like aluminum in warehouses or oil in storage tankers enables banks to drive up prices for basic products made from them – like gasoline, canned soft drinks and beer, and electricity. The proposal follows the Fed’s 2014 advanced notice of proposed rulemaking and the OCC’s recent proposal to prohibit national banks and federal savings associations from investing in industrial and commercial metals.
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The proposed new requirements would mean banks would have to salt away a total of up to $4 billion in additional capital, Fed officials estimate. Under the proposal, firms would have to hold more capital, not be able to engage in activities involving power plants and not be allowed to own or store copper.
