Bank Holding Company Act

Proposed new limits on bank activities in physical commodities

On September 23, 2016, the Federal Reserve Board of Governors (Board) issued a Notice of Proposed Rulemaking concerning whether to impose new restrictions on the activities of banks related to physical commodities. The proposed rule would:

• increase capital requirements for activities of Financial Holding Companies (FHCs) involving commodities for which existing laws would impose liability if the commodities were released into the environment;
• lower the limit on the amount of physical commodities that may be held by banks that conduct commodity trading activities;
• rescind authority for banks to engage in energy tolling and energy management services;
• delete copper from the list of precious metals that Bank Holding Companies (BHCs) are permitted to own and store; and
• establish new public reporting requirements on the nature and extent of firms’ physical commodities holdings and activities.

Additionally under a report was issued pursuant to Section 620 of the Dodd-Frank Act. (620 Report), which includes recommendations for legislation to repeal several current authorities for banks to engage in physical commodities activities.

Under the 620 Report the Board recommends legislative action that would:

• repeal the authority of FHCs to engage in merchant banking activities; and
• repeal the grandfather authority for certain FHCs to engage in commodities activities under section 4(o) of the Bank Holding Company Act.

References

Sources

• FDIC Important Banking Legislation (2004).

References

1. "Risk -based Capital and Other Regulatory Requirements for Activities of Financial Holding Companies Related to Physical Commodities and Risk -based Capital Requirements for Merchant Banking Investments". Board of Governors of the Federal Reserve System.
2. (21 October 2016). "Federal Reserve Board Seeks New Limits on Bank Activities in Physical Commodities". [[Wilmer Cutler Pickering Hale and Dorr LLP]].
3. "Notice of proposed rulemaking, Risk-based Capital and Other Regulatory Requirements for Activities of Financial Holding Companies Related to Physical Commodities and Risk-based Capital Requirements for Merchant Banking Investments". the Board of Governors of the Federal Reserve System.
4. (16 September 2016). "Banking Regulators Issue Dodd-Frank Report on Bank Activities and Investments". Katten Muchin Rosenman LLP.