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Tuesday, November 29, 2016

Currency Authority Proposes Ban on Bank Investments in Commercial Metals

Jayme Wiebold at Regblog:

Currency Authority Proposes Ban on Bank Investments in Commercial Metals: In addition to typical banking activities such as issuing home loans and administering savings accounts, should your neighborhood bank be able to buy and trade metals like copper and gold? Presently, financial institutions can legally participate in commodities markets—which include trading in these precious metals—creating a state of affairs that some regulators and politicians say may increase commodities prices for consumers and create financial instability. ...
The Office of the Comptroller of the Currency, which regulates and supervises national banks and federal savings associations, recently ... proposed [a] rule that would prohibit banking institutions from buying or selling metals including copper, aluminum, and gold. ...
Designating dealing in certain commercial metals as an out-of-bounds activity for commercial banks marks a reversal of position for the Currency Comptroller. It previously issued an interpretive letter stating that national banks could buy and sell copper—an industrial metal—because such trading was functionally equivalent to trading in precious metals like gold—an activity considered within the “business of banking.”
As indicated by the proposed rule, the Comptroller no longer believes that investing in copper markets is principally the same as dealing with coins made from precious metal or other types of gold. ...
The Comptroller’s proposed rule comes on the heels of a report it co-authored with the Federal Reserve and Federal Deposit Insurance Corporation, which contains several recommendations to ensure the separation of traditional banking activities from more commercial activities. The report specifically states that the Comptroller would publish a proposed rule about limits on trading copper.
In the report, the Federal Reserve also recommends several other reforms that aim to “help ensure the separation of banking and commerce.” It proposes repealing a rule that allows bank holding companies to participate in commodities activities similar to those addressed by the Comptroller’s proposed rule for national banks and recommends strengthening standards for other commodity-related activities like trading derivatives. The report’s authors also recommend repealing authority for financial holding companies to participate in merchant banking activities like buying a stake of ownership in a company instead of providing a traditional loan.
The Comptroller’s proposed rule is part of a growing trend of regulatory and political pressure to separate traditional banking activity from commercial activity. ...

    Posted by on Tuesday, November 29, 2016 at 10:13 AM in Economics, Financial System, Regulation | Permalink  Comments (5)


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