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September 11, 2013

Banks Face Physical Commodity Curbs

Wall Street is bracing for a ruling that may hasten the exit of J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley from businesses such as metals warehousing, oil shipping and power generation.

Financial-industry executives expect the Federal Reserve to issue guidelines as soon as this month limiting bank participation in so-called physical-commodities businesses.

The decision would mark a significant step in the government’s effort to curtail risky activities on Wall Street, forcing large financial companies to dismantle franchises a decade or more in the making. The rules would apply to all U.S. banking companies.

The move would come five years after Goldman and Morgan Stanley, which already operated physical commodities-trading units, shifted to Fed-regulated status at the height of the financial crisis. Such bank-holding companies are generally restricted from participating in physical markets without waivers from the Fed. Fed regulations allow banks a maximum of five years to dispose of businesses that aren’t allowed under existing law.”

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Read full Wall Street Journal article here

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