“(Reuters) – Wall Street banks have mounted a massive legal defense of their physicalcommodities activities, in a last-ditch effort to convince regulators that chartering oil tankers and owning power plants pose no risk to the financial system.”

“In a 54-page memo drafted by four leading law U.S. law firms and commissioned by six major financial industry groups, they argue that existing statutes, case law and risk-management procedures protect regulated banks – and therefore the taxpayer – from any catastrophe that might unfold in the course of trading physical commodities.”

“The legal framework governing such activities permits a (bank) to conduct them without presenting an undue risk” to its safety and soundness, the memo states, citing sources ranging from environmental statutes to Supreme Court decisions to guidance from the Federal Reserve’s own bank examination manual.”

“It was attached to an even lengthier letter submitted at the end of a three-month period for the Fed to take public comments on potential new regulations that would limit banks’ ability to trade and invest in physical commodities. It is not clear how quickly the Fed may move to craft formal rules, which would also face a period of public scrutiny.”

“In announcing in January its plans to reexamine existing rules and requirements for such trading, the Fed cited disasters including BP’s (BP.L) oil spill in the Gulf of Mexico in 2010 and the derailment and explosion of an oil train in Canada last year as cause for concern over the impact of a commodity catastrophe.”

“The memo focused on two issues in detail: whether banks face liability for damages under three federal environmental statutes, or for incidents involving their portfolio companies, or merchant banking investments, which are typically held at arm’s length.”

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Read full Reuters article here.