Possible Fed limits on Wall Street energy bets will be "harmful": US Chamber

[WASHINGTON] The US Chamber of Commerce on Thursday blasted the Federal Reserve's regulatory work and called on the central bank to scrap a proposal to limit Wall Street's energy bets and commodities investments.

The group, which says it represents more than 3 million US businesses and professional organisations, wrote to the Fed that it should withdraw its proposed plan to require banks to hold more capital against energy and commodity investments.

Wall Street also could not control power plants and bank holding companies would be prohibited from owning copper under the plan, which was unveiled in September.

Altogether, banks would have to hold roughly US$1 in capital for every US$1 of energy infrastructure they owned, which would lead to them having to offer roughly US$4 billion in fresh capital. Goldman Sachs Group Inc and Morgan Stanley would feel much of that impact.

The restrictions would be extremely harmful and hurt companies' ability to engage in merchant banking, the Chamber wrote.

"We strongly believe that statements from the Federal Reserve and justification provided in the proposed rule explicitly acknowledge that a hypothetical, unrealised risk somehow outweighs the real and demonstrable benefits of merchant banking," it wrote.

Showing Wall Street could bring a wide-reaching fight to Washington this year, the Chamber then called for the Fed to comprehensively study 10 regulatory initiatives, including funding ratios to strengthen banks' liquidity.

The list also includes regulations intended to carry out the Volcker Rule from the 2010 Dodd-Frank Wall Street reform law, aimed at barring banks from speculating with customers' money.

"The combination of all of these initiatives could lead to an underperforming financial sector and create barriers to capital formation," it wrote.

"The inability of businesses to be able to engage in normal capital formation activities, efficient cash management and effective risk management will raise costs and create inefficiencies, adversely impacting economic growth and financial stability."

During the 2016 election campaign, President-elect Donald Trump and fellow Republicans pledged to roll back regulations and revamp Dodd-Frank. Because the Fed is independent, though, Mr Trump and Congress will have few avenues to affect its regulations.

REUTERS