NEW YORK/WASHINGTON Jan 13 The Federal Reserve is set to take its first formal step toward limiting major Wall Street banks' role in physical commodities markets this week and issue a notice to seek public comment on the topic, sources familiar with the matter said on Monday.
The Fed will publish a so-called "advance notice of proposed rulemaking" on Tuesday, laying out the issues it is considering, one day before a second Senate banking committee hearing on the matter, the sources said.
It is not clear what measures the Fed may propose. The public is expected to have a set period of time -- typically 60 to 90 days -- in which to submit comment letters.
Over the past year, lawmakers have pressed the Fed to examine whether Wall Street's biggest banks, including JPMorgan Chase & Co and Goldman Sachs, should be allowed to own assets such as metals warehouses and oil tankers, and to trade physical commodities alongside commodity derivatives.
At a Senate hearing in July, witnesses testified that the activities pose a risk to the financial system in the event of a catastrophic accident. Metals consumers complained that banks' ownership of physical storage assets enabled them to inflate prices for commodities such as aluminum.