Fed Extends Comment Deadline for Physical Commodities Proposal

The Federal Reserve today announced that it will extend the comment period for its proposed rule on physical commodities activities for financial holding companies. Comments will now be due on Feb. 20.

The proposed rule would impose tighter capital requirements and limitations on financial holding companies engaged in physical commodities activities. Under current law, certain FHCs are permitted to engage in physical commodities trading, energy management and energy tolling activities, and FHCs are also permitted to make merchant banking investments in companies engaged in activities involving physical commodities.

The proposed rule would revise the calculation used to determine the total value of commodities held by a FHC (which is currently limited to 5 percent of tier 1 capital) and clarify existing prohibitions on certain activities. It would also impose new risk-based capital requirements for activities that could expose the FHC to liability in the event that the physical commodity was released into the environment.

Additionally, the proposed rule rescinds authorizations that allow certain financial holding companies to engage in physical commodity activities involving power plants, removes copper from the list of precious metals that all BHCs are permitted to own and store, and establishes new reporting requirements for commodities holding.