On Feb. 17, FIA submitted a letter to the Federal Reserve Board requesting more careful study before moving forward on a proposed rule that would restrict or eliminate bank activities in physical commodities.
FIA echoed many of the concerns it made in response to the Fed's advance notice of proposed rulemaking in 2014, and said it continues to have significant concerns regarding any potential new restrictions on financial holding companies' physical commodities activities, including the physical settlement of commodity-linked swaps and other derivatives.
FIA repeated that restrictions on those activities would likely impair competition and liquidity in physical commodities markets; undermine the critical intermediary, principal and financing role played by banks in such markets; and lead to inefficient pricing and higher costs, all to the detriment of end users. "We submit that any potential benefits of such restrictions do not outweigh these harmful market effects," FIA wrote.
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