WASHINGTON Sens. Sherrod Brown, D-Ohio, and Elizabeth Warren, D-Mass., urged regulators on Wednesday to tighten restrictions on banks involved in physical commodities markets.
The lawmakers, who have been vocal on the issue for months, submitted comments to the Federal Reserve Board, which has been accepting responses to a January notice that the agency is considering extending limits on the types of physical commodities activities that financial holding companies can be involved in. Wednesday was the deadline for the comment period on the advance notice of proposed rulemaking.
The lawmakers laid out a number of concerns and suggestions for regulators, urging them to ban banks from directly holding physical assets.
"As a general matter, [financial holding companies] should be prohibited from owning physical assets like warehouses, pipelines, and tankers," the senators wrote. "These activities pose significant safety and soundness, legal, and reputational risks to institutions."
Increased scrutiny by regulators and lawmakers has prompted some institutions, including JPMorgan Chase (JPM), to sell off their commodities businesses. But several Democrats, including Brown and Warren, are warning that regulators need to go further. At a hearing in January, they criticized the Fed's proposal as timid, and they continue to push for greater restrictions.
"While some institutions may be exiting various activities, legal and regulatory reforms are still necessary and appropriate because these institutions will continue to engage in the storing and trading of precious metals and other commodities-related activities, some institutions are not leaving the business, and any [financial holding company] could elect to return to physical commodities in the future," they added in the letter.