The Federal Reserve’s review of its decision to let banks store, transport and trade raw materials signals a potential rebuilding of the wall between banking and commerce that legislation and rulemaking have eroded, Bloomberg News reported today. The central bank said on July 19 that it’s reviewing a decade-old decision that physical commodities are “complementary” to banking, allowing lenders such as Citigroup Inc. and JPMorgan Chase & Co. to operate in both industries. Goldman Sachs Group Inc. and Morgan Stanley may be less at risk from the review as some businesses owned before the firms became bank holding companies in 2008 are grandfathered. The move into physical commodities exposed the biggest banks to additional risks and allegations of price manipulation, creating potential legal liabilities and threatening to damage their reputations. The shift also weakened the barrier between government-insured banks and other commerce established by the 1956 Bank Holding Company Act.
