Federal Reserve Governor Daniel Tarullo has raised concerns on whether investment banking institutions such as Morgan Stanley and Goldman Sachs should be allowed to own physical commodities. He believes that this practice exposes the banking institutions to non traditional risks and thus breaches "the wall between banking and commerce."
Mr. Tarullo's concerns arise from the 1999 Gramm-Leach- Bliley law. This law ended the separation of investment and deposit-taking firms. This law grandfathered commodities that Morgan Stanley and Goldman Sachs had before 1997.
Mr. Tarullo thinks that these two firms should be treated just like all other bank holding companies, as these two companies were securities firms until they became bank-holding companies during the 2008 crisis.
"While the Fed can't change laws, it can make commodities ownership more onerous for banks by requiring them, for example, to hold more capital or disclose more information about the activities."
Amid Fed and lawmaker pressure and declining commodity prices,Wall Street firms have been exiting the physical commodities business.
Mr. Tarullo's concerns arise from the 1999 Gramm-Leach- Bliley law. This law ended the separation of investment and deposit-taking firms. This law grandfathered commodities that Morgan Stanley and Goldman Sachs had before 1997.
Mr. Tarullo thinks that these two firms should be treated just like all other bank holding companies, as these two companies were securities firms until they became bank-holding companies during the 2008 crisis.
"While the Fed can't change laws, it can make commodities ownership more onerous for banks by requiring them, for example, to hold more capital or disclose more information about the activities."
Amid Fed and lawmaker pressure and declining commodity prices,Wall Street firms have been exiting the physical commodities business.
1 comment:
I agree with the point that Daniel Tarullo was making. There is no need to create more loopholes as well as exceptions that can be exploited in the future when the separation of banking and commerce has proved to be working well.
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