WASHINGTON Several of America's largest enterprises including Boeing Co (BA.N) and United Parcel Service Inc (UPS.N) warned the Federal Reserve on Tuesday that restricting Wall Street's trading in physical commodity markets could harm their business.
The U.S. Federal Reserve is reexamining a decade-old decision to allow banks to trade in raw materials, as well as their associated derivative markets. Critics of the decision say it has given banks too much sway over the supply chain.
Reversing that decision would force major industries to hold more of their own supplies and bear greater costs, according to a letter signed by energy companies, manufacturers, and transport powers like Owens Corning (OC.N) and BNSF Railway Co BNISF.UL. The U.S. Chamber of Commerce also signed the letter.
Wall Street is a partner with industry in spreading the costs and risks of commodities investments, the letter said, and if the Fed were to drive banks from the market "we likely would be forced to tie-up our own capital in holding physical inventories and the related infrastructure to manage those inventories."
But some lawmakers warn that Wall Street has gone too far when it not only lends money and makes trades but also owns warehouses, pipelines, oil tankers and infrastructure that affect the entire economy.
Sherrod Brown, Democrat of the Senate Banking Committee, warned in a July hearing that those investment ties have grown so deep that they could harm the market and consumers.
But while lawmakers may push officials to fine-tune market competition, the Fed has typically seen its primary role as safeguarding the health of the financial system.
The Fed said in July that it was reviewing a decision it made in 2003 that allowed Citigroup to become the first regulated bank to trade in physical commodity markets, which was followed by a host of similar decisions for other banks.
The review also includes Goldman Sachs GSGSC.UL and Morgan Stanley (MS.N).
Officials from the Fed and the Commodity Futures Trading Commission (CFTC) were expected to testify before a Senate Banking Committee panel led by Senator Sherrod Brown on October 8, though it is unclear whether that will still take place given the government shutdown.
(Reporting by Patrick Rucker and Douwe Miedema; Editing by Leslie Gevirtz and Richard Chang)