By Patrick Rucker
WASHINGTON, Oct 1 (Reuters) - A swathe of some of America's biggest industrial firms including Boeing and UPS 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 rule that allowed banks to trade in raw materials, as well as their associated derivative markets, amid criticism that some banks may 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 own supplies and otherwise bear greater costs, reads the letter signed by power companies, energy producers, refiners and manufacturing giant like Owens Corning and BNSF Railway Co. The U.S. Chamber of Commerce also signed the document.
Wall Street is a partner with industry in spreading the costs and risks of commodities investments, reads the letter, 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 inventories."
The Fed is also expected to rule soon on whether Goldman Sachs and Morgan Stanley should be allowed to continue owning oil tankers, warehouses and power plants as part of their commodity trading businesses. This decision is separate from the Fed's surprise "review" of its 2003 determination that first allowed commercial banks to trade in physical commodities, which was cited in Tuesday's letter.
Officials from the Fed and the Commodity Futures Trading Commission (CFTC) are expected to testify on October 8 before a Senate Banking Committee panel led by Senator Sherrod Brown, a vocal critic of large banks who has pushed regulators to do more to watch for dangers of abuse in the commodities market.