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Limits Must Be Placed on Banks’ Ownership and Control of Commodity Assets

Jan. 15, 2014

Limits Must Be Placed on Banks’ Ownership and Control of Commodity Assets

Note: Today, the Senate Banking Subcommittee on Financial Institutions and Consumer Protection holds a hearing detailing the threats posed to consumers and financial stability when banks own and control physical commodity assets. Additionally, the Federal Reserve announced on Tuesday that it would accept public comments on exemptions granted for banks to own physical commodities. Since 2007, Public Citizen has testified before Congress and federal agencies describing how bank control over energy infrastructure gives banks an unfair trading advantage at the expense of consumers.

WASHINGTON, D.C. – Congress and the Federal Reserve should limit banks from owning commodities, Public Citizen said today.

Over the years, banks have done far more than provide monetary services for customers. They have invested in a wide range of industries, in many cases dominating the markets and driving up prices for basic goods.

“While the Federal Reserve’s announcement that it welcomes public comments on its authority to restrict bank holding companies’ control over physical commodities is a good step – although months late –, the Fed must commit to a far more transparent process in undertaking this review,” said Tyson Slocum, director of Public Citizen’s Energy Program. “Public Citizen believes that bank holding company control over commodity infrastructure – such as metal warehouses, oil tankers and pipelines – pose both systemic financial risks to the system, as well as threaten consumers with anti-competitive practices.”

To protect consumers from unfair trading practices and ensure systemic financial protections, Public Citizen calls for the following reforms:

-The Federal Reserve should revoke exemptions granted to bank holding companies that allow them to own physical commodities;

-Congress must limit communications between energy asset affiliates and proprietary trading affiliates of both banks and non-bank financial companies; and

-Congress must address new efforts by banks to abuse commodity trading markets. These efforts include using firms selling data collected via satellite and others employing snooping technologies and selling real-time data to banks, which then can profit by trading on the non-public data.