Some US industries say Wall Street commodity bets a help

Reuters

By Patrick Rucker

WASHINGTON, Oct 1 (Reuters) - Several of America's largestenterprises including Boeing Co and United Parcel ServiceInc warned the Federal Reserve on Tuesday thatrestricting Wall Street's trading in physical commodity marketscould harm their business.

The U.S. Federal Reserve is reexamining a decade-olddecision to allow banks to trade in raw materials, as well astheir associated derivative markets. Critics of the decision sayit has given banks too much sway over the supply chain.

Reversing that decision would force major industries to holdmore of their own supplies and bear greater costs, according toa letter signed by energy companies, manufacturers, andtransport 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 thecosts and risks of commodities investments, the letter said, andif the Fed were to drive banks from the market "we likely wouldbe forced to tie-up our own capital in holding physicalinventories and the related infrastructure to manage thoseinventories."

FED POWER

But some lawmakers warn that Wall Street has gone too farwhen it not only lends money and makes trades but also ownswarehouses, pipelines, oil tankers and infrastructure thataffect the entire economy.

Sherrod Brown, Democrat of the Senate Banking Committee,warned in a July hearing that those investment ties have grownso deep that they could harm the market and consumers.

But while lawmakers may push officials to fine-tune marketcompetition, the Fed has typically seen its primary role assafeguarding the health of the financial system.

The Fed said in July that it was reviewing a decision itmade in 2003 that allowed Citigroup to become the firstregulated bank to trade in physical commodity markets, which wasfollowed by a host of similar decisions for other banks.

The review also includes Goldman Sachs and MorganStanley.

Officials from the Fed and the Commodity Futures TradingCommission (CFTC) were expected to testify before a SenateBanking Committee panel led by Senator Sherrod Brown on October8, though it is unclear whether that will still take place giventhe government shutdown.

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