JPMorgan Chase & Co. (JPM), Morgan Stanley (MS) and Goldman Sachs Group Inc. (GS) are among lenders whose commodity-trading is in jeopardy as the Federal Reserve reconsiders letting banks ship oil and store metal.
The central bank, ahead of a Senate subcommittee hearing on the issue tomorrow, says it’s reviewing a decade-old ruling to let deposit-taking banks trade physical commodities. A reversal would be the Fed’s biggest exclusion of banks from a market since Congress lifted the Depression-era law against them joining with securities firms in 1999.
“Like any regulator, the Fed doesn’t like reversing a long line of decisions,” said Saule T. Omarova, a law professor with the University of North Carolina at Chapel Hill, who’s scheduled to testify at tomorrow’s hearing. “If they get enough pressure from the outside they might be forced to do so.”
The 10 largest Wall Street banks generated about $6 billion in revenue from commodities in 2012, including dealings in physical materials as well as related financial products, according to a Feb. 15 report from analytics company Coalition. Goldman Sachs ranked No. 1, followed by New York-based JPMorgan.
Goldman Sachs held $7.7 billion of commodities at fair value as of March 31 and New York-based Morgan Stanley had $6.7 billion, according to regulatory filings. None of the banks disclose how much revenue or profit comes from commodity trading or break out the contribution from physical assets.