The Fed’s silence a concern for banks

The Fed’s silence leaves the two banks even more unsure about whether they will be able to continue owning and operating physical commodity trading assets, from power plants to metal warehouses, and the banks questioning whether the long-running issue has now been swept into a broader Fed review of the role of Wall Street in physical markets.

The banks have been discussing the issue with the regulator behind closed doors for five years, since converting to Fed-regulated banks at the peak of the financial crisis in September 2008. Rival commercial banks are not allowed to own such assets.

But in July, Wall Street’s role – including other banks – in physical commodity trading suddenly came under intense scrutiny in Washington amid a series of civil and criminal investigations, including accusations banks have artificially inflated prices in markets from electricity in California to aluminium, boosting the cost of aluminium drink cans.

That issue may come to a head at Senate Banking Committee hearings next month, where the Fed and the banks are expected to testify. The close nature of the two dates has led some to speculate that the Fed may make an announcement on its review soon.

Nevertheless, the Fed’s silence on the expiry of the September 21 deadline came as a surprise to some.