In January 2014, the Federal Reserve issued an advance notice of proposed rulemaking (ANPR) in which it raised questions regarding increased limits and restrictions on the physical commodities activities of financial holding companies (FHCs) under the Bank Holding Company Act of 1956 (BHC Act).1 The Federal Reserve cites recent environmental events as a reason for its review of physical commodities activities by FHCs. The ANPR cites the Deepwater Horizon oil spill, the incident at the Fukushima Daiichi nuclear power plant, and other environmental events to support its concerns that “the costs and liability related to physical commodity activities can be difficult to limit and higher than expected.”
The ANPR follows a period of heightened focus on the participation of FHCs in physical commodities activities, culminating in the release by the Federal Reserve of a brief statement in July 2013 that it is “reviewing the 2003 determination that certain commodity activities are complementary to financial activities” and thus permissible for FHCs, referring to the Federal Reserve’s initial approval of certain physical commodities activities under “complementary” authority. Subsequently, the Senate Subcommittee on Financial Institutions held a hearing at which several witnesses criticized the role of financial institutions in commodity markets and a second hearing examining the physical commodities activities FHCs are authorized to conduct under the BHC Act and the economic impact of such activities on the physical commodity and energy markets and their impact on the safety and soundness of the banking system.
