* Hearing on banks and commodities set for Jan. 15
* Top officials from FERC, Fed and CFTC will appear
* Alleged aluminum manipulation to be back in focus
By Anna Louie Sussman
Jan 8 A Senate panel will hold a hearing next
week to question financial regulators over Wall Street's role in
physical commodity markets, drawing fresh attention to a
controversy over the possible risks posed by the involvement of
the largest U.S. investment banks.
The Jan. 15 hearing by a subcommittee of the powerful Senate
Banking Committee is to include testimony by top oversight
officials with the Federal Energy Regulatory Commission and the
Commodity Futures Trading Commission and an official from the
Federal Reserve's banking supervision arm.
The hearing, the second called by Senator Sherrod Brown, an
Ohio Democrat, comes as the Fed reconsiders exemptions given to
banks since the early 2000s that allow them to engage in the
previously prohibited trading of physical commodities.
Brown and other lawmakers have questioned whether Wall
Street's biggest banks, including JPMorgan Chase & Co
and Goldman Sachs, should be allowed to own metals
warehouses, oil tankers and other physical assets next to their
vast commodity and commodity derivatives trading desks.
At next week's session, the Fed will likely be called on to
explain how banks' involvement in commodity markets could hurt
their "safety and soundness," said Arthur Long, a banking lawyer
at Gibson, Dunn & Crutcher.
Representing FERC will be Norman Bay, a former New Mexico
district attorney who has led a series of high-profile market
manipulation cases against big traders in the U.S. power and gas
markets, including a record $410 million penalty agreed with
Bay, who took over the FERC's Office of Enforcement in 2009,
pressed the cases after Congress gave the agency expanded powers
following the California power scandals more than a decade ago.
The Fed's director of banking supervision and regulation,
Michael Gibson, and the CFTC's market oversight chief, Vince
McGonagle, will be the other two witnesses.
The hearing follows a high-profile session in July in which
brewers complained that banks, including JPMorgan and Goldman,
had inflated the price of aluminum. Brewers use aluminum for
their beverage cans.
The hearing had originally been scheduled for November but
was postponed for unknown reasons.
RETREAT OR EXIT
The intense regulatory and political scrutiny has already
forced major banks, including JPMorgan and Morgan Stanley
, to pull out or shrink their commodities businesses.
JPMorgan announced in July plans to sell its physical
commodities business shortly before it agreed to the settlement
with FERC over allegations of manipulation of California and
Midwest power markets.
Last month, Morgan Stanley sold the majority of its global
physical oil trading operations to Russian state-run oil major
Rosneft, becoming the latest Wall Street firm to
dispose of a major part of its commodity business.
The presence of the CFTC is likely to stir the debate over
alleged manipulation of the aluminum market.
The U.S. commodities regulator took the lead in the summer
in investigating complaints by end-users, including MillerCoors,
that big banks and commodities merchants had made it more
expensive for them to buy metal by restricting the flow of metal
out of warehouses.
The U.S. Justice Department is also investigating the
At the first hearing in July, MillerCoors, the second
largest brewer in the United States, said high physical prices
have cost U.S. consumers an extra $3 billion a year.
Goldman has said that Metro International Trade Services,
its warehousing unit, has not broken any laws or rules. JPMorgan
has consistently said its warehousing subsidiary does not have