Thursday, October 24, 2013

The Fed is about to make owning physical assets a game all banks can play


Last week, Federal Reserve officials leaked to the Wall Street Journal their tentative plan to limit the ability of Goldman Sachs and big banks to own metals warehouses, power plants, and other physical commodity assets.

But experts say that, if implemented, the policy the Fed is floating would actually expand the rights of all banks to enter these physical markets, by creating an official entrance instead of locking the door shut. Presented like a deterrent, it would also be a novel enabler.

According to the Wall Street Journal, the Fed’s plan would call for balancing out the new right to hold assets with a requirement that banks hold more capital to cover the potential risks posed by these activities. The Fed declined to comment on the report but is expected to make a decision in the coming weeks.

Some experts believe that this additional cost will lead most banks to abandon these lines of business. But it’s an unsafe bet. Not only is it not clear how the Fed would structure these surcharges, there is no guarantee that a steep fee would push banks out. “When you have regulatory costs associated with highly lucrative businesses, the banks just typically pass them through to customers and end users,” said Josh Rosner, managing director of Graham Fisher & Co, who testified in July on a Senate hearing about whether banks should be doubling as oil refiners and coal miners.
For the rest of the story:

No comments:

Post a Comment

Related Posts Plugin for WordPress, Blogger...