What is The Fed suddenly worried about?
In a somewhat shocking report from The Federal Reserve, Janet Yellen and her motley crew of private bankers are urging Congress to make some significant changes to banking regulation. As Bloomberg highlights:
- Fed urges Congress to repeal section of the Bank Holding Act that allows Wall Street firms to make investments in non-financial companies, report says
- Prohibiting merchant banking would prevent Wall Street from “becoming exposed to the risk of legal liability for the operations of a portfolio company,” Fed says
- Merchant-banking ban would also “help address potential safety and soundness concerns and maintain the basic tenet of separation of banking and commerce,” Fed says
- Fed also advises Congress to restrict bank ownership of physical commodities
- Fed separately advises Congress to force industrial loan companies to operate within the “regulatory and supervisory framework applicable to other corporate owners of insured depository institutions”
- Fed, FDIC and OCC report to Congress on bank practices required under Dodd-Frank Act
The two that caught our eyes most were:
1) the ban on 'investing in non-financial companies', which is highly ironic given that other central banks are directly buying massive stakes in the world's corporate entities; and
2) restrictions on physical ownership of commodities, which raises eyebrows on both oil manipulation and the hoarding of precious metals ahead of The Fed losing control.
Of course, the chances of any of these reccommendations actually being signed into law is nil - especially if Clinton is elected - since Wall Street donors will not take kindly to this 'restriction'.
The full statement:
Agencies Issue Study on Banking Activities and Investments
The Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency today released a report to the Congress and the Financial Stability Oversight Council on the activities and investments that banking entities may engage in under applicable law.
Section 620 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) required the federal banking agencies to conduct the study and report to Congress on the types of activities and investments permissible for banking entities, the associated risks, and how banking entities mitigate those risks. For the purpose of this study, banking entities include insured depository institutions and any company that controls an insured depository institution or is treated as a bank holding company under the International Banking Act of 1978. The study also covers any affiliate or subsidiary of such companies.
Each agency prepared the section of the report relative to the banking entities that it supervises. Each of the three sections includes a discussion of permissible activities, risk mitigation, legal limitations, and specific recommendations as required by the Dodd-Frank Act.