By Patrick Rucker
WASHINGTON, Oct 1 (Reuters) - Several of America's largest
enterprises including Boeing Co and United Parcel Service
Inc 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 and BNSF Railway Co
. 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
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 and Morgan
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.