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Fed says worth considering dropping banks' exemption on commodities

[NEW YORK] A top Federal Reserve official on Thursday said the US central bank would consider overturning a decades-old rule that allows two US banks to trade physical commodities, as part of its review of Wall Street's involvement in oil and metals markets.

Asked at a Senate Banking Committee hearing on bank regulation what bank regulation rules could be strengthened, Fed Governor Daniel Tarullo referred directly to commodity rules that currently exempt two banks from restrictions.

Without naming the banks, he said it would be "very much worth considering treating firms that are exempted like other banking companies."

Morgan Stanley and Goldman Sachs have legal protection included in a clause in a 1999 landmark law Gramm-Leach-Bliley Act that "grandfathered" any commodity trading and investment activities for investment banks who later converted to Fed authority.

REUTERS