Senate panel to grill Fed's Tarullo, bankers over commodities

[November 18, 2014] By Emily Stephenson and Douwe Miedema

WASHINGTON (Reuters) - A heavyweight list of bankers and regulators will appear before a U.S. Senate committee this week in a probe into Wall Street's role in commodity markets and ahead of possible tougher rules from the Federal Reserve.

Markets will weigh every word from Federal Reserve Governor Daniel Tarullo, in charge of financial regulation at the central bank, which in January said it would come out with rules to rein in banks' activities in the market.

Tarullo will testify on Friday, the second of a two-day hearing of the Permanent Subcommittee on Investigations that will focus on banks' ownership of oil, natural gas and aluminum, the committee said on Monday.

The Senate has been looking into complaints that prices for raw materials such as aluminum are artificially high because of long waiting queues in metals warehouses, some of which are run by banks and commodity traders.
 

The Fed's announcement in January followed months of growing public and political pressure to check banks' decade-long expansion into commodities. The Fed also questioned the initial rationale for allowing them to trade and invest in raw materials and lease oil tanks or own power plants.

But it has so far not given any insight into measures it may be considering as a new policy.

On Thursday, speakers will include Christopher Wibbelman, the head of Goldman Sachs's warehousing unit Metro International Trade Services. It will be the first time an executive from the unit has spoken in public about the years-long controversy.

Also appearing for the panel, which is led by Senator Carl Levin, a Democrat from Michigan, will be speakers from JP Morgan Chase & Co and from Morgan Stanley.

The probe into banks and commodities is seen as Levin's final target before retiring at the end of this year after serving on the panel for about 15 years.

Nick Madden at Novelis, the world’s top flat-rolled aluminum maker, is another speaker. He has been a long-time critic of the warehouse system, run by the London Metal Exchange, which he says has contributed to soaring physical prices even as the market has been in surplus.

Two regulators - the Department of Justice and Commodity Futures Trading Commission - are looking into the issue, and JP Morgan and large commodity traders such as Glencore, Xstrata and Trafigura, which all own warehousing companies, have also come under scrutiny.

(Reporting by Emily Stephenson and Douwe Miedema; Additional reporting by Josephine Mason; Editing by Doina Chiacu and Andrea Ricci)

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