Breaking; Federal Reserve set to crack down on big banks

Federal Reserve Bank governor Daniel K. Tarullo gave testimony on Nov. 21 that the central bank is preparing to unveil new restrictions aimed at making it harder for Wall Street banks to make big bets in the commodities markets, according to a Nov. 22 New York Times news report.

Tarullo struck an unexpectedly aggressive stance in his appearance on Nov. 21 in front of a Senate subcommittee that has been investigating the involvement of big banks in the markets for basic materials like coal, aluminum and gas. He said that the Fed expected to issue a formal notice of potential new rules in the first quarter of next year. Those new regulations could force banks to amass more capital to protect against losses on holdings of commodities and restrict banks from some types of commodities operations that they are currently allowed to do.

The New York Times reported that In his unscripted remarks, Tarullo, the Fed governor who oversees regulatory policies, also outlined a number of other areas where he said he wanted the Fed and other regulators to increase oversight of bank activities. Referring to recent problems involving banks’ foreign exchange and interest rate trading desks, Tarullo said, “In general the compliance procedures, and expectations within firms for abiding by laws, are not adequate in many cases.”

The testimony from Tarullo came during the second day of hearings held by the Senate Permanent Subcommittee on Investigations. The subcommittee released a 400-page report this past week that detailed cases in which banks had made enormous investments in the commodities markets that allowed the banks to influence the prices of commonly used materials.

A JPMorgan executive said Nov. 20 that the bank was already pulling back from the physical commodities markets.