Fed on Commodities, Credit Suisse Plea, Pay Rule: Compliance

Nov. 24 (Bloomberg) — The Federal Reserve may curtail Wall Street commodity businesses after lawmakers said banks’ role in energy, power and metals markets spurred unfair trading advantages and could threaten financial stability.

At a Senate hearing Nov. 21 held by the Senate Permanent Subcommittee on Investigations, Fed Governor Daniel Tarullo said curbs under consideration include ownership limits, restricting how much revenue can be derived from commodities and requiring Wall Street firms to boost capital. He said the new rules, to be proposed early next year, could restrict banks from investing in oil tankers, coal mines and other businesses involved in physical commodities.

Last week, the Senate panel released findings from a two- year investigation that said Wall Street’s role in owning commodities provided undue influence over prices and could threaten the economy if a bank-controlled business suffered an industrial catastrophe. The findings put pressure on the Fed to stiffen rules that have allowed lenders to erode what was once a strict line separating banking from commercial activities.

At a separate Senate hearing Nov. 21, New York Federal Reserve President William C. Dudley questioned whether banks should be involved in commodities at all. The Fed is looking at the issue “intently,” he told lawmakers on the Senate Banking Committee.

The Fed has drawn criticism from senators who allege it engaged in weak oversight over the last decade as banks expanded into new businesses involving aluminum warehouses, coal mines and trading in electricity and uranium.

Banks have moved to sell commodities units amid the scrutiny and revenue from the businesses has tumbled by two- thirds from peak years.

Courts

Credit Suisse Judge Accepts $2.6 Billion Tax Evasion Plea

Credit Suisse AG’s $2.6 billion plea bargain resolving allegations it helped wealthy Americans avoid paying taxes was accepted by a federal judge, ending a three-year probe that helped upend Swiss bank secrecy.

The first global banking unit in more than a decade to plead guilty to a crime in a U.S. court, Zurich-based Credit Suisse was sentenced to pay the penalty Nov. 21 by U.S. District Judge Rebecca Beach Smith in Norfolk, Virginia.

Credit Suisse pleaded guilty in May to conspiracy to aid and assist Americans in filing false tax information to the U.S. Internal Revenue Service. The judge was bound to either impose terms of the agreement as a sentence or throw out the entire deal, according to the government.

While prosecutors have extracted guilty pleas from some regional subsidiaries of large banks in recent years, such as RBS Securities Japan Ltd. and UBS Securities Japan Co., they have spared global parents. Credit Suisse AG is the banking subsidiary of Credit Suisse Group AG.

The case is U.S. v. Credit Suisse AG, 14-cr-188, U.S. District Court, Eastern District of Virginia, Alexandria).

Interviews/Commentary

Bundesbank’s Weidmann Speaks on Regulation, Bank Risk

Bundesbank President Jens Weidmann spoke on regulation and risk-taking by banks at the European Banking Congress in Frankfurt.

Weidmann traced some of the historic origins of banking regulation, recalling medieval rules requiring a diet of bread and water for bankers who left customers without resources.

For the video, click here.

‘Extremely Important’ Compensation Rule Coming, OCC Chief Says

U.S. regulators are nearly finished with a rule that will require financial companies to ensure incentive pay for executives doesn’t promote overly risky behavior, Comptroller of the Currency Thomas Curry said Nov. 21 at a Clearing House Association banking conference in New York.

Curry, expressing disappointment with delays in finishing the rule, observed that the European Union compensation rules from last year may already be influencing companies.

–With assistance from Jesse Hamilton, Cheyenne Hopkins and Silla Brush in Washington and Christie Smythe in Brooklyn.

To contact the reporter on this story: Carla Main in New York at [e-mail] To contact the editors responsible for this story: Michael Hytha at [e-mail] David Glovin, David E. Rovella