Broad swathe of U.S. Inc. urges Fed to go easy on Wall Street

Reuters

By Patrick Rucker

WASHINGTON, Oct 1 (Reuters) - A swathe of some of America'sbiggest industrial firms including Boeing and UPS warned the Federal Reserve on Tuesday that restricting WallStreet's trading in physical commodity markets could harm theirbusiness.

The U.S. Federal Reserve is reexamining a decade-old rulethat allowed banks to trade in raw materials, as well as theirassociated derivative markets, amid criticism that some banksmay have too much sway over the supply chain.

If the Fed were to curtail Wall Street's role in that space,major industries would be forced to hold more of their ownsupplies and otherwise bear greater costs, reads the lettersigned by power companies, energy producers, refiners andmanufacturing giant like Owens Corning and BNSF RailwayCo. The U.S. Chamber of Commerce also signed thedocument.

Wall Street is a partner with industry in spreading thecosts and risks of commodities investments, reads the letter,and if the Fed were to drive banks from the market "we likelywould be forced to tie-up our own capital in holding physicalinventories and the related infrastructure to manage thoseinventories."

The Fed is also expected to rule soon on whether GoldmanSachs and Morgan Stanley should be allowed tocontinue owning oil tankers, warehouses and power plants as partof their commodity trading businesses. This decision is separatefrom the Fed's surprise "review" of its 2003 determination thatfirst allowed commercial banks to trade in physical commodities,which was cited in Tuesday's letter.

Officials from the Fed and the Commodity Futures TradingCommission (CFTC) are expected to testify on October 8 before aSenate Banking Committee panel led by Senator Sherrod Brown, avocal critic of large banks who has pushed regulators to do moreto watch for dangers of abuse in the commodities market.

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