WASHINGTON — The Federal Reserve Board unveiled a concept proposal Tuesday outlining how it plans to limit banks' activities in physical commodities, a day ahead of a Senate subcommittee hearing devoted to the issue.

The central bank, which is responsible for supervising the largest financial institutions in the country, is weighing whether it should extend limits that would reduce a bank's stake as well as how much institutions can trade in certain commodities.

"The board is considering whether additional restrictions would help ensure that physical commodities activities authorized for financial holding companies are conducted in a safe and sound manner and do not pose a threat of financial stability," the agency said in a press release.

On Wednesday, Michael Gibson, direction of the division of banking supervision and regulation at the Fed, will appear to speak on this issue before the Senate Banking financial institutions subcommittee, which is chaired by Sen. Sherrod Brown, D-Ohio.

Gibson will be joined by Vince McGonagle, director of the division of market oversight for the Commodity Futures Trading Commission and Norman Bay, director of the office of enforcement for the Federal Energy Regulatory Commission.

At this stage, the Fed is only soliciting comments from stakeholders before deciding how to proceed on this issue. "After reviewing the comments, the board will consider what further action, including a rulemaking, is warranted," the agency said.

The Fed is asking the public to weigh in on a variety of issues, including the risks that physical commodity activities can pose to banks' soundness, potential conflicts of interest by firms engaging in physical commodity activities and possible risks and benefits of regulators imposing additional capital requirements on those firms.

The deadline to file comments is March 15.

U.S. financial institutions have already begun trying to exit the physical commodities business given regulatory investigations and potential rule changes. In July, JPMorgan Chase & Co. announced its sale of its commodities business to potential buyers. Morgan Stanley has also reportedly been in talks to sell its commodities-trading division as well.

Brown immediately criticized the Fed's action as a "step forward" but "still overdue and insufficient."

"Each day that we wait to rein in these activities means that end users and consumers will pay higher commodity and energy prices, and taxpayers will continue to be exposed to excessive risks at 'too big to fail' banks," said Brown, who first held a hearing on the issue last July, in a press release.

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