HOTTER ON METALS: Watch out, Senators; bank bashing comes with a health warning

Be careful what you wish for. That’s the message Randall Guynn, a partner and head of the financial institutions group at law firm Davis Polk & Wardwell LLP, will serve on Tuesday July 23 to the US Senate committee taking a look at the involvement of banks in physical commodities.

“A retrenchment (of banks from physical commodities) could lead to increased prices and greater price volatility, among other consequences,” Guynn will tell a subcommittee of the US Senate Committee on Banking, Housing and Urban Affairs. Imagine, for instance, the enforced withdrawal of Goldman Sachs and JP Morgan from physical commodities trading, which seems to be, by extension, what is being debated right now. Both banks are significant players in commodities markets, whether metals, power, oil or agriculture. Unraveling the associated derivatives books with those physical positions could cause short-term havoc in the markets, assuming there are willing counterparties with the appetite to pick up the business. The impact on market liquidity, particularly in some of the smaller markets like metals, would likely be vast, narrowing the number of significant players further and leaving the market open to some of the trading firms out of the jurisdiction of the US and...


Andrea Hotter

July 23, 2013

02:57 GMT

New York