* Commodity traders not seen as "too big to fail"
* Watchdog raises scrutiny of lightly regulated sector
* Bank lobby group commissioned study on trading houses
By Emma Farge
GENEVA, May 14 A study commissioned by a global
banking lobby group has found that banks pose a greater systemic
risk than their commodity trading house competitors do and the
report has not been made public, its author said.
Craig Pirrong, a University of Houston academic confirmed he
was the author of the study commissioned by the Global Financial
Markets Association (GFMA).
He said the GFMA, chaired by bank JP Morgan's head of global
commodities Blythe Masters, had hoped to use the study to
influence the Financial Stability Board (FSB), a global watchdog
that has been examining regulation of commodity trading.
"I call them like I see them. GFMA didn't like that. I
wouldn't change the call, so they sat on the report," Pirrong
wrote in his blog "Streetwise Professor" on Monday.
In another posting Pirrong argued that commodity traders,
unlike large banks, are not regarded as "too big to fail".
GFMA, a body linking three major financial trade
associations in Europe, Asia and North America that lobbies on
regulatory issues, denied that the report had remained in draft
form because its findings did not suit the group.
"GFMA often commissions research which is shared with the
regulatory community and not published more widely," it said in
an emailed statement.
The FSB is studying the role of commodity traders as part of
two separate reviews of the shadow banking system and
systemically important financial institutions.
This work could result in new restrictions for the
relatively lightly regulated commodity trading sector, which
competes with banks in areas such as commodities lending.
The report for the GFMA could, however, justify lighter
regulations for commodity traders than for banks and, in the
eyes of banks, entrench an unfair advantage.
The Financial Times on Monday quoted the study commissioned
by the GFMA as saying that large trading companies, such as
Glencore or Vitol, "pose less systemic
risks" than large banks.
The newspaper quoted people familiar with the situation as
saying the report remained in draft form after its conclusions
did not meet the group's expectations.
The GFMA declined to provide Reuters with a copy of the
report but said it had been made available to regulators.
"In this case, in July 2012, we shared a draft of the report
with key policymakers and regulators from all over the world,
including the Financial Stability Board (FSB), the Securities
and Exchange Commission in the US and the UK's Financial
The regulatory burden on banks is growing.
They face more stringent capital requirements under the new
Basel III restrictions aimed at reducing systemic risk after the
2008 crisis, during which some banks were bailed out having been
judged "too big to fail" because their collapse would endanger
the financial system.
In one of his blogs, Pirrong wrote: "I know...that major
banks involved in commodity markets are chafing under the
restrictions imposed on them, and resent the fact that commodity
firms that are their competitors in certain activities are not
subject to the same restrictions."