Investment Banks as Commodity Market Makers

David Sheppard, Jonathan Leff and Josephine Mason of Reuters reported on March 2, 2012 that the biggest American banks are struggling with the Federal Reserve to maintain the warehouses, storage tanks and other such assets they use as part of their commodity trading empires. JPMorgan Chase, Morgan Stanley and Goldman Sachs have acquired most of these assets over the past six years.

It is likely that within the next year and one-half, the Fed will either permit these banks to invest in physical commodities more than ever or demand that they sell the assets even though they are so valuable.
Sources have told Reuters that Goldman Sachs and Morgan Stanley are contending that they have the right to own such assets because they are ‘grandfathered’ from their days as highly regulated investment banks or that they are "merchant banking" assets segregated from the trading desks. Reuters has written that these banks face hostile attitudes in Washington, since banks are being pressured to reduce risk on their balance sheets, commodity prices are rising,
and the banks’ trading desks are in a position to squeeze the commodities for profits.

Washington may make it difficult for these banks to branch out into these risky areas of finance.

Summarized from:http://finance.yahoo.com/news/insight-wall-street-fed-face-182249160.html