The Federal Reserve may force banks to boost capital for their commodities businesses and improve disclosures after a Senate investigation found Wall Street’s role in energy and power markets could threaten financial stability.
In prepared remarks for a Senate hearing today, Fed Governor Daniel Tarullo said banks’ control over assets such as oil, coal, aluminum and uranium poses “unique risks” that the central bank is seeking to rein in. The Fed plans to move forward on new regulations next year, he said.
“We are exploring measures such as additional capital requirements, enhanced risk-management requirements, and additional data collection and reporting requirements on physical commodities activities to help ensure that such activities do not pose undue risks,” Tarullo said.
This week, a Senate panel released findings from a two-year investigation that concluded Wall Street’s role in owning commodities provided unfair trading advantages and could threaten the financial system if a bank’s business suffered an industrial catastrophe. Tarullo faces questions today over why the central bank allowed lenders to erode what was once a strict line separating banking from commercial activities.