U.S. lawmakers to seek action on Wall St commodity bets -sources
WASHINGTON, Sept 23
WASHINGTON, Sept 23 (Reuters) - U.S. lawmakers critical of Wall Street's sway over physical commodity markets will push financial regulators to take action at a hearing next month, two industry sources said.
Officials from the U.S. Federal Reserve and the Commodity Futures Trading Commission (CFTC) are expected to testify on Oct. 8 before a Senate Banking Committee panel led by Senator Sherrod Brown, a vocal critic of large banks. It is the second such hearing by the committee, and follows months of unprecedented public and political scrutiny.
The meeting comes as the Fed, the country's top financial regulator, reconsiders exemptions given to banks since the early 2000s that allowed them to engage in the previously banned trading of physical commodities. It is also due to make a decision about whether Goldman Sachs Group Inc and Morgan Stanley will be allowed to own trading assets such as oil terminals.
The Fed will be represented by Michael Gibson, a director of the central bank's Division of Banking Supervision and Regulation, who represents the Fed abroad, for instance on the Basel Committee on Banking Supervision, the sources said.
CFTC Commissioner Bart Chilton, a Democrat who has made no secret of his mistrust of large banks involved in commodity markets, is also expected to testify, one source said.
The date of the meeting, as well as the list of participants, has not yet been finalized, both sources said.
The fact that neither Gibson nor Chilton are decision makers makes it unlikely the hearing will be the stage for big policy announcements, the industry sources said, but will rather be largely informative in nature.
Some market sources expected the Fed to make clear its position on physical commodity trading ahead of the hearing, which has been tentatively planned for months, although details have only recently firmed up.
At a similar hearing before the Senate committee in July, lawmakers listened to complaints from commodity buyers that banks had pushed up prices, and criticized the Fed for allowing banks to expand their commodity activities.
In July, the Fed said it was reviewing a decade-old decision that cleared the way for bank holding companies to take possession of the physical raw materials that underpin derivative markets, such as cargoes of gasoline and pallets of copper. But Fed watchers are unsure exactly which policies and which banks will come under the strongest review.
This weekend, a five-year exemption allowing Goldman and Morgan Stanley to hold physical commodity assets, a privilege that goes back to their origins as unregulated investment banks in the 1990s, expired without a word from the Fed, which has been talking about the matter to the duo for years.
The Fed has also allowed other banks such as JP Morgan Chase & Co and Citigroup Inc to enter the lucrative commodity business from the early 2000s, and JPMorgan said in July that it was exiting the physical commodities business.
The CFTC, which regulates futures and swaps for commodity and other markets, sent out subpoenas in July to metals warehousing firms as part of a broader inquiry into complaints about inflated metals prices.
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