Carl Levin

I am wondering if that is a concern of yours, Governor Tarullo.

I misspoke there. The private company had proposed building a plant to export 9,000 cubic feet of gas; Morgan Stanley proposed a plant to export 60 billion cubic feet.

Now, we saw examples of that type of unfair competition in our investigation.

I do not think we want banks that are under your authority and have advantages because of their connection to the Fed to engage in manipulative activities.

Too many Wall Street financial holding companies are ready and willing to engage in market manipulations and will do so until they are caught.

I think it was your study which pointed out some numbers as follows, the Fed study: That financial holding companies typically have a capital ratio of 8 to 10 percent, where oil and gas companies, for instance, have capital ratios…

We have a situation which is totally unacceptable to me, and that is that in the area of commodities, which do not have the same regulation as stock...

Financial regulators should ensure that large traders, including financial holding companies, are legally precluded from using material non-public information gained from physical commodities activities to benefit their trading activities…

One of the key issues that has been raised in the physical commodities area involves unfair trading and market manipulation.

So you need size limits. You need them that do not have a whole bunch of loopholes in them. You need them to be enforced.

We uncovered actions taken by JPMorgan to use loopholes, exclusions, and valuation techniques to stay under the Fed's 5-percent limit.

Congress has the opportunity to amend the language anytime it wants to, and perhaps it should.

The Federal Reserve is in a position where they have an obligation to give an interpretation to this.

In 2010 the Federal Reserve Commodities Team undertook a 2-year in-depth review of the physical commodity activities being conducted under the grandfather clause at Goldman Sachs and Morgan Stanley.

Again, this goes, I guess, to Professor Omarova.

And then that would have a negative effect on the public.

And could the failure to make those infrastructure and resource investments increase the potential for a catastrophic event?

And does making that bet also mean that they are less willing to dedicate the time, resources, and expertise to comply with regulatory requirements and to make expensive infrastructure investments that are needed?

And if they are making the bet that we just described that a catastrophic event will not take place during the time that they own or lease a facility, does it mean that it is more likely that they will not allocate sufficient capital and…

How important, again, is that transitory factor?

Global Commodities' operational risk loss during storage and transportation of its physical commodity assets is limited to the value of those assets as catastrophic [or] environmental risk resides with the facility operators.

While there is no explicit scenario for environmental [or] catastrophic damage for any business line or corporate area, exposure related to participation in commodity markets primarily resides in the damage to physical assets risk category…

If you are a direct owner or operator of a facility that has an environmental incident, you could be held directly liable for the actions of that subsidiary.

Does that fact pattern increase Goldman's potential liability?

Does that type of shell arrangement increase the chances that Morgan Stanley would be held liable if that plant were struck by a disaster?