WASHINGTON, D.C. – Following a hearing of the Senate Banking Committee on questionable practices in the physical commodities market, Goldman Sachs Group Inc announced this week that would make metal shipments available for immediate delivery to its customers. During a hearing last week of the Subcommittee on Financial Institutions and Consumer Protection, U.S. Sen. Sherrod Brown – who chairs the subcommittee – raised concerns over alarming new reports of bank holding companies (BHCs) controlling the price and supply of physical commodities.  The move by Goldman follows an announcement, made only days after Brown’s hearing, by JPMorgan that it would explore exiting its commodities business.

“This is a victory for aluminum end users and for American consumers,” Brown said.  “Wall Street megabanks should not be able to levy hidden taxes on Main Street beer drinkers. I will continue to push for permanent reforms to the rules that allow banks to trade in physical commodities, and own warehouses and power plants. American taxpayers should not be exposed to the risks of market manipulation from too big to fail banks controlling the 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.

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. Last week’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, 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.

Witnesses at the hearing included: Saule T. Omarova, Assistant Professor at University of North Carolina at Chapel Hill School of Law [view testimony] ; Randall D. Guynn, Partner, Davis Polk Wardwell LLP [view testimony] ; Josh Rosner, Managing Director, Graham Fisher & Company [view testimony] ; and Tim Weiner, Global Risk Manager, Commodities and Metals, MillerCoors, LLC [view testimony] . To read the testimony of each witness, please click here.

 

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