In the wake of the financial crisis, opponents of the banking industry are always eager to find new sticks with which to beat the villains of Wall Street. The latest one they have stumbled upon is banks’ participation in physical commodities.
On July 19, the US Federal Reserve Board issued a statement saying it was reviewing a 2003 determination that paved the way for banks to increase their involvement in the transport and storage of physical commodities.
Separately, Goldman Sachs and Morgan Stanley have both made disclosures that suggest the Fed is reviewing the additional latitude the two banks have to engage in physical activities – a legacy of their pre-2008 status as investment banks.
These developments have come amid a torrent of criticism from commentators, politicians and regulators. At a one-sided US Senate hearing on July 23, banks’ physical commodity trading was linked to an array of negative consequences, including inflated commodity prices, rising systemic risk and even a potential shortage of beer cans.
Read More: What is this big fuss about banks being involved in physical commodities?