United States lawmakers are pressing the Federal Reserve to act more forcefully, and quickly, to limit banks’ involvement in the commodities business, which has been blamed for inflating prices on everyday items like electricity and canned beverages.
For months, Congress has been evaluating complaints that the huge commodities holdings of investment banks like Goldman Sachs and Morgan Stanley pose a risk to the financial system. Businesses and consumer groups have also expressed concern that the banks’ financial heft gives them an unfair advantage over other competitors as well as the ability to manipulate prices for essentials like energy, cotton and food.
On Tuesday, the Fed said it was considering some new rules and issued a request for public comment. In part, the Fed wants to determine whether the financial system could be hurt if banks incurred large losses in the volatile commodities markets.
But lawmakers want the Fed to take more action. Senator Sherrod Brown, who led Wednesday’s hearing on the issue, said he was “incredulous” that the Fed had been examining the matter for six years and had yet to make significant changes.
“The Fed’s proposal yesterday was a timid step,” said Mr. Brown, Democrat of Ohio. “It was too slow in coming, and there is still too much that we do not know about these activities and investments.”
Other members of the Senate subcommittee on financial institutions and consumer protection faulted the Fed for being overly focused on the internal workings of banks. In doing so, lawmakers said the Fed overlooked the effect that the banks’ commodities activities may have had on prices paid by the public.
When regulators evaluate a bank’s request to enter into a commodities-related business, they are supposed to weigh whether it will have a public benefit. But during questioning from Senator Jack Reed, a Fed official acknowledged that its evaluation focused primarily on the bank.
“So the public interest test goes by the wayside,” said Mr. Reed, Democrat of Rhode Island.
“That’s the way it’s set up in the statute,” said the official, Michael S. Gibson, the director of the Fed’s division of banking supervision and regulation.
The formal request released by the Fed on Tuesday seeks public input on 24 questions about how banks’ activities in the commodities business may benefit or harm consumers — or more broadly, the financial system.
In the 19-page notice, the Fed referred to costly accidents in the commodities business in recent years, including the 2010 BP oil spill in the Gulf of Mexico. The regulator said a similar crisis at a bank-owned facility could endanger the financial system.