With Impending Commodities Crackdown, JPMorgan Looks to Slim Down

Exchange floor

Regulators have turned their eyes to large financial institutions that own commodities storage facilities, with the Commodity Futures Trading Commission, or C.F.T.C., taking the first step in examining warehouse operations controlled by companies like Goldman Sachs (NYSE:GS), and used to store vast amounts of aluminum.

The Senate has begun an investigation of its own, and hearings meant to understand how Wall Street has broadened its scope from banking to global markets for essential commodities started at the end of July. The overarching question is whether banks should control the storage and shipments of commodities, and whether that control could present a risk to the nation’s financial system.

Already, as The New York Times reported on July 20, Goldman Sachs has exploited industry pricing regulations by using a fleet of trucks to move 1,500-pound bars of aluminum between warehouses, thereby lengthening the storage time of the commodity, increasing the prices paid by manufacturers and consumers across the country, and adding millions of dollars per year to the company’s coffers.