Fed Wants to Regulate Wall Street Commodity Holdings

The Federal Reserve is implementing stringent capital requirements to discourage banks from owning physical commodities like power plants and metals. These rules aim to make it financially unfeasible for banks to engage in such activities, leading many, except Goldman Sachs, to exit the market. Goldman Sachs remains committed due to its historical ties and market-making functions. The Fed's concerns include potential liabilities and unfair advantages in trading derivatives. The changes could shift commodity trading to other markets, like Chicago, while banks continue trading derivatives.

What is the primary reason the Federal Reserve is imposing high capital requirements on banks involved in physical commodities?

• To reduce the number of banks in the financial sector

• To promote the growth of the commodities market

• To make it expensive for banks to own physical commodities

• To encourage banks to invest more in derivatives

Which bank has continued its involvement in physical commodities despite the new regulations?

• Citibank

• Bank of America

• JPMorgan Chase

• Goldman Sachs

Why is Goldman Sachs hesitant to exit the physical commodities business?

• It has no other profitable ventures

• It wants to expand its physical commodities operations

• It is not affected by the new regulations

• It believes the business is crucial for its market-making functions

What are banks still allowed to do under the new regulations?

• Acquire more physical commodities

• Trade derivatives on energy commodities

• Build new power plants

• Own oil tankers

What concern does the Fed have regarding banks trading derivatives and physical commodities?

• Banks could gain an unfair advantage by seeing physical commodity flows

• Banks might lose money on derivatives

• Banks will dominate the commodities market

• Banks will stop trading derivatives