WASHINGTON, D.C. – Following a hearing of the Senate Banking Committee on questionable practices in the physical commodities market, the Board of the London Metal Exchange (LME) approved changes to its warehousing policy designed to cut lengthy warehouse waits that affected aluminum end users, like American beer makers. In October, Brown was joined by Sen. Elizabeth Warren (D-MA) in a letter regarding the LME’s proposed changes to rules governing industrial metals trading.
“LME’s warehouse rule recognizes the hardships faced by aluminum end users, and the concerns raised by government regulators and policymakers,” Brown said. “However, we need a clear, enforceable, and immediate standard that does not exacerbate existing market exploitation. I will continue to examine this issue to ensure safety and soundness in our financial system and fairness for end users.”
During a July hearing of the Subcommittee on Financial Institutions and Consumer Protection convened by Subcommittee Chairman Brown, aluminum end users raised concerns over alarming new reports of bank holding companies (BHCs) controlling the price and supply of physical commodities.
The hearing was entitled, “Examining Financial Holding Companies: Should Banks Control Power Plants, Warehouses, and Oil Refineries?” and examined the practice of bank holding companies (BHCs) owning physical commodities – like aluminum or oil – and the effect on consumers and manufacturers.
By hoarding physical commodities, BHCs ultimately drive up the cost of everyday commodities and products like gasoline, canned soft drinks and beer, and electricity for Ohioans. Historically, BHCs have been restricted under the Bank Holding Company Act (BHCA) from engaging in commercial activities. In recent years, BHCs have utilized a number of waivers and loopholes in the law, with occasional sign-off from federal regulators, to expand business operations into physical commodities and energy. Brown’s hearing shed light on the industry’s practices and focused on the high costs manufacturers and consumers pay because of artificially high prices driven by Wall Street banks.
According to a recent article in the New York Times, many Wall Street megabanks hoard commodities and financial products and thereby drive up prices for consumers and manufacturers. The practice also creates a potential for anti-competitive market behavior and manipulation. The New York Times reports, "The maneuvering in markets for oil, wheat, cotton, coffee and more have brought billions in profits to investment banks like Goldman, JPMorgan Chase and Morgan Stanley, while forcing consumers to pay more every time they fill up a gas tank, flick on a light switch, open a beer or buy a cellphone." While the United Sates once separated banking from traditional commerce, today’s banks are now allowed to engage in a variety of non-financial activities, such as owning oil pipelines and tankers, electricity power plants and metals warehouses. Today, the six largest U.S. bank holding companies have 14,420 subsidiaries, only 19 of which are traditional banks.