Change U.S. law on banks and commodities, regulator says

Fri Oct 4, 2013 4:27pm EDT
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By Douwe Miedema

WASHINGTON (Reuters) - Congress should limit Wall Street's controversial role in commodity markets, and rewrite a law that gives banks broad leeway to own oil, metals and other raw materials, a senior U.S. regulator said on Friday.

The Federal Reserve, the top U.S. bank watchdog, is rethinking its policy of allowing banks to operate in commodity markets amid accusations they inflate the prices of items such as aluminum and electricity.

"I plan to urge that the law be amended by simply reversing the policies that allow for bank ownership," said Bart Chilton, a commissioner at the Commodity Futures Trading Commission (CFTC), the top U.S. derivatives regulator.

The law also gives some banks an advantage over others, Chilton said, in reference to Morgan Stanley (MS.N: Quote) and Goldman Sachs Group Inc (GS.N: Quote), which only came under Fed supervision in 2008 at the height of the financial crisis.

Because the two changed their legal status at that time, the law treats them more leniently than their rivals, allowing them to hold any commodity businesses they had before September 30, 1997, through a so-called grandfather clause.

"There are two banks that are using yet another exception to the law," Chilton said in a speech.

Chilton had planned to address lawmakers critical of Wall Street's role in commodities at a panel meeting of the Senate Banking Committee scheduled for October 8, although the date is now moot because of the government shutdown.

The lawmakers, led by Senator Sherrod Brown, a Democrat from Ohio, will also grill Fed officials attending the meeting - the second one they are holding on the matter.   Continued...

A general view of the U.S. Federal Reserve building as the morning sky breaks over Washington, July 31, 2013. REUTERS/Jonathan Ernst