Banks' Commodity Business Drawing Regulator Scrutiny

Federal Reserve is reviewing a decision to let banks trade commodities seen as complementary to their banking business.

U.S. financial regulators will boost scrutiny of banks’ commodities holdings and use their authority to pursue evidence of fraud and manipulation, the heads of two agencies told lawmakers.

“We’re a market regulator overseeing the commodity futures, swaps markets and have clear authority to police markets for fraud, manipulation, and other abuses,” Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler said at a Senate Banking Committee hearing, where he testified yesterday alongside Securities and Exchange Commission Chairman Mary Jo White. “We will use those authorities appropriately where we see abuses and pursue it.”

The CFTC should undergo further review of the LME to preserve market integrity, Senator Debbie Stabenow, a Michigan Democrat and chairman of the Senate Agriculture Committee, said in a letter to Gensler today. Stabenow asked the agency to describe its oversight and the status of a 2001 CFTC letter allowing LME to access U.S. customers.

White said that she recently asked staff at the SEC to examine questions regarding disclosure of information about the markets. “I am looking into that and the range of possible disclosure issues that could be involved as well,” she said.

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