When the Federal Reserve gave JPMorgan Chase (JPM)approval to trade physical commodities in 2005, it prohibited the bank from expanding into the commodity storage business to minimize its exposure “to additional risks.” Five years later, JPMorgan bought one of the world’s biggest metal warehouse companies.

While the Fed won’t discuss why its regulators permitted that purchase, the central bank announced on July 19 that it’s reviewing a 2003 decision that set the precedent for letting deposit-taking banks trade physical commodities. “The Federal Reserve regularly monitors the commodity activities of supervised firms and is reviewing the 2003 determination that certain commodity activities are complementary to financial activities and thus permissible for bank holding companies,” said Barbara Hagenbaugh, a Fed spokeswoman. “Like any regulator, the Fed doesn’t like reversing a long line of decisions,” says Saule Omarova, a law professor at the University of North Carolina at Chapel Hill. “If they get enough pressure from the outside, they might be forced to do so.”

Some of that pressure may come from Congress. On July 23 a subcommittee of the Senate Banking, Housing, and Urban Affairs Committee heard testimony on whether financial companies such as Goldman Sachs (GS)and Morgan Stanley (MS) should continue to be allowed to store, ship, and own physical assets such as metal and oil. The panel is led by Senator Sherrod Brown (D-Ohio), who’s among lawmakers saying banks can drive up prices when they control both the physical products and the financing. “What do we want our banks to do? Make small business loans or refine and transport oil? Issue mortgages or corner the metals market?” he asked at the outset of the hearing. “Taxpayers have a right to know what’s happening and to have a say.” Brown said he may hold another hearing in September and wants representatives of banks, the Fed, and the U.S. Commodity Futures Trading Commission to testify.

The nation’s 10 largest banks generated about $1 billion in revenue from dealings in physical commodities and $5 billion from commodities-based derivatives in 2012, according to data from analytics company Coalition. JPMorgan, Goldman Sachs, and Morgan Stanley are the biggest Wall Street players in physical commodities. JPMorgan had $14.3 billion in physical commodities as of March 31, according to a filing. Goldman Sachs held $7.7 billion of commodities as of March 31 and Morgan Stanley had $6.7 billion, according to regulatory filings.

Goldman Sachs owns coal mines in Colombia and a piece of the railroad that takes the coal to port. It also has a stake in an oil field off the coast of Angola, among other investments. In February 2010, Goldman Sachs bought Romulus (Mich.)-based Metro International Trade Services, which as of July 11 operated 34 out of 39 storage facilities licensed by the London Metal Exchange in the Detroit area, according to LME data. Since 2010 aluminum stockpiles in Detroit-area warehouses surged 66 percent and now account for 80 percent of U.S. aluminum inventory monitored by the LME, exchange data from July 18 showed.

Metro has been accused of shifting aluminum from one warehouse to another to increase rental income and create shortages, according to the New York Times. “Users who need the metal can’t get it, and the money they make is coming at the expense of the American consumer,” says Robert Bernstein, an attorney with Eaton & Van Winkle in New York representing consumers who’ve complained to the LME about what they call artificial shortages. The Beer Institute, a trade group, says warehouses are creating logjams, adding about $3 billion in costs to aluminum users annually since 2010. “Recent news reports have inaccurately accused Metro of deliberately creating aluminum shortages and incorrectly asserted that Metro moves aluminum from one warehouse to another in order to earn more rent fees,” Goldman Sachs said in a statement.

Morgan Stanley’s commodity interests include Denver-based TransMontaigne (TLP), a petroleum and chemical transportation and storage company, and Heidmar, based in Norwalk, Conn., which manages more than 100 oil tankers, according to its website. A spokesman for the bank declined to comment on the Fed’s rule review.

Banks have had run-ins with regulators in other commodity markets. JPMorgan inherited electricity sales contracts in California and the Midwest when it bought failing investment bank Bear Stearns in 2008. JPMorgan is nearing an agreement with the Federal Energy Regulatory Commission to settle allegations that it manipulated electricity prices and got at least $73 million in improper payments, the Wall Street Journal reported. A JPMorgan spokesman declined to comment.

Having banks in the commodities business makes the financial system less stable and more difficult to supervise, according to Omarova, the law professor. “It stretches regulatory capacity beyond its limits,” she says. “No regulator in the financial world can realistically, effectively manage all the risks of an enterprise of financial activities, but also the marketing of gas, oil, electricity, and metals. How can one banking regulator develop the expertise to know what’s going on?”