Fed probes catastrophic risks in bank physical commodity trading

The US Federal Reserve has moved to tighten the rules on physical commodity trading by banks, citing fears they might suffer huge losses as a result of an environmental disaster. How valid are such concerns and what steps is the Fed likely to take? Alexander Osipovich reports

deepwater-horizon
The 2010 Deepwater Horizon explosion and oil spill

During the past year, US banks have been embroiled in a public relations nightmare over physical commodity trading. Costly settlements for alleged power market manipulation, accusations of nefarious dealings at aluminium warehouses, and hostile hearings on Capitol Hill have created an environment in which the presence of Wall Street banks in physical markets looks increasingly precarious.

On January 14, the US Federal Reserve Board added its voice to the clamour. In a 19-page document, the Fed

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