Regulators plan to boost scrutiny of banks on commodities

‘Clear Authority’

Goldman Sachs in February 2010 bought Romulus, Michigan- based Metro International Trade Services LLC, which as of July 11 operated 34 out of 39 storage facilities licensed by the LME in the Detroit area, according to LME data. Since then, aluminum stockpiles in Detroit-area warehouses surged 66% and now account for 80% of U.S. inventory monitored by the LME and 27% of total LME stockpiles, exchange data from July 18 show.

The CFTC should undergo further review of the LME to preserve market integrity, Senator Debbie Stabenow, a Michigan Democrat and chairman of the Senate Agriculture Committee, said in a letter to Gensler today. Stabenow asked the agency to describe its oversight and the status of a 2001 CFTC letter allowing LME to access U.S. customers.

White said that she recently asked staff at the SEC to examine questions regarding disclosure of information about the markets. “I am looking into that and the range of possible disclosure issues that could be involved as well,” she said.

‘Undue Risk’

Brown has said the Fed needs to give clear guidance on what activities should be allowed “and consider placing limitations on those that expose banks and taxpayers to undue risk.”

Senator Carl Levin, the Michigan Democrat who leads the Permanent Subcommittee on Investigations, has conducted reviews that faulted Goldman Sachs for its trading of mortgage-backed securities before the credit crisis and JPMorgan over derivatives trading losses. He said his panel, which has subpoena power, has been looking at the commodities issue for at least six months.

“The potential here for conflicts of interest and manipulating prices to benefit their own proprietary holdings is huge and it’s a very, very serious issue,” Levin said in an interview on July 23.

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