Quote: How Banks Can Use Their Commercial Holdings to Manipulate Markets for the Purpose of Increasing their Trading Profits; Or Vise Versa

From “Beyond Finance: Permissible Commercial Activities of U.S. Financial Holding Companies”, by Saule T. Omarova, Cornell Law.






“One of the key policy reasons for separating banking from commerce is the fear of banks unfairly restricting their commercial-market competitors’ access to credit, the lifeblood of the economy. Banks can also use their financial power to influence prices in commercial markets in which their affiliates operate. The relatively recent growth of global derivatives markets, in which large U.S. FHCs (Financial Holding Companies) are key participants, raises these concerns with potential conflicts of interest and market manipulation to a qualitatively new level. If the same FHC trades derivatives linked to the price of some underlying asset and, at the same time, through its commercial operations, can influence the supply of, or demand for, that asset, that FHC can intentionally move the underlying asset’s price to maximize gains from its derivatives positions”. —- Read more

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