Banks Face Senate Hearings Over Commodities Businesses

Wall Street faces renewed scrutiny over whether its investments in physical commodities poses conflicts of interest.

Following a two-year investigation, a U.S. Senate panel will hold hearings this month on banks’ ownership of oil, natural gas, aluminum and other commodities. The hearings will focus on the “consequences” of those holdings, Senator Carl Levin, the Michigan Democrat who chairs the Senate Permanent Subcommittee on Investigations, said in a statement today.

“Our largest banks and their holding companies have become deeply involved in a wide range of physical commodity activities in ways that pose risks to the U.S. financial system,” said Levin, who is retiring from Congress after spearheading probes of financial-industry wrongdoing.

Wall Street commodities businesses drew criticism in 2013 after beer makers complained that long wait times for metal deliveries from bank-owned warehouses had led to price spikes. Witnesses at the hearings, set for Nov. 20-21, include academics and officials from Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and the Federal Reserve, said three people familiar with the matter who asked not to be identified because attendees haven’t been announced.

Spokesmen for the banks and the Fed declined to comment.

CFTC Subpoenas

Senator Sherrod Brown, an Ohio Democrat, held a series of hearings starting last year on the issue. The Commodity Futures Trading Commission has issued subpoenas to Goldman Sachs, JPMorgan and other banks that operated metal warehouses.

JPMorgan, Morgan Stanley and Bank of America Cop. have sold or announced plans to sell portions of their commodities businesses.

Goldman Sachs said in May that it had started the process of selling Metro International Trade Services LLC, a metal-warehouse business purchased in 2010. Still, Chief Executive Officer Lloyd C. Blankfein has said the bank’s commodities unit is a “core” business that provides crucial services to its clients.

The Fed responded to the scrutiny by seeking input from banks and the public on the risks posed by financial companies owning and trading oil, gas and aluminum. Senator Brown and other Democrats have urged the central bank to bar lenders from owning physical commodities.

Levin said in an April letter that the Fed should limit how much banks can invest in commodities and require that they hold additional capital to protect against business risks. He stopped short of calling for a ban on lenders owning physical commodities.

Wall Street has been a frequent target of Levin’s panel. The subcommittee spent two years investigating the cause of the 2008 credit crisis, holding hearings on Goldman Sachs, Deutsche Bank AG and credit-rating companies. The commodities probe is his last attack on Wall Street before he retires at the end of the year.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE