With vast networks of wealth between them and an ability to hold, acquire and store physical commodities on an almost infinite scale, it’s incredibly difficult to tease apart what the largest banks in the world actually physically own. This makes it nearly impossible to determine what kind of effect the stockpiling has on markets dependent on the relative supply of physical assets.
While regulatory bodies can see what banks like J.P. Morgan Chase, Goldman Sachs Group and Morgan Stanley are trading in the markets, it’s considerably more difficult to assess what they own in the way of physical assets and properties. But the bank-owned commodities are receiving increased focus, in part due to Commodity Futures Trading Commissions (CFTC) investigations on the effect they’re having in the commodities markets.
In a planned address Saturday before the Michigan Agri-Business Association, CFTC member Bart Chilton called for more complete disclosure on the material holdings of banks. Chilton asserted that because banks had nearly infinite wealth and the ability to hold commodities, there was a risk they could alter the fair trade of those physical holdings.
“Of course the prices of commodities are supposed to be based upon supply and demand. However what if you control, or have significant influence upon, the supply or the demand? Seems like perhaps—I don’t know—maybe there’s a conflict of interest,” Chilton said in his prepared remarks.
In August the CFTC began an investigation on banks inflating the cost of aluminum and other metals, issuing subpoenas to several large scale banks. The investigation was antagonized by complaints filed by beer and soda manufacturers who asserted that stockpiling of aluminum was making the metal more expensive.
Chilton said, “Congress should not only do away with the statutory exemption that has been used by Goldman and Morgan, but also do away with the ability of the Fed to allow any commodity-related ownership by the banks whatsoever.”
Banks should expect increased interest in their commodities activity, spurred in large part to CFTC investigations.