Fed seeks sharp limit on Wall Street commodity holdings

By Jesse Hamilton
Bloomberg News
Friday, September 23, 2016

Goldman Sachs Group Inc.'s and Morgan Stanley's sometimes lucrative romance with metals, coal, and oil could become prohibitively expensive under a proposed rule released Friday by the Federal Reserve.

The long-awaited regulation would require banks to put up much more capital to support investments in physical commodities, restrict involvement with power plants, and limit the amount of trading banks can do. While the Fed doesn't have the power to sever banks' ties to physical commodities, it is seeking massive capital increases for the activities -- especially at Goldman Sachs and Morgan Stanley, which have special legal exemptions to stay in those businesses.

Fed officials estimated that the rule would mean about $4 billion in additional capital for the industry's current level of investment, though Wall Street has been steadily backing away.

"The proposal would help reduce the catastrophic, legal, reputational, and financial risks that physical commodity activities pose to financial holding companies," the Fed said in a statement.

Though it's unstated, the proposal also addresses years of criticism that banks could seize unfair advantages in metal and energy markets by owning hard assets and operating huge trading desks at the same time. ...

... For the remainder of the report:

http://www.bloomberg.com/news/articles/2016-09-23/fed-proposes-aggressiv...