BOARD OF GOVERNORS 

OF" THE 

FEDERAL RESERVE SYSTEM 

WASHINGTON, O. C. 20551 

ADDRESS OFFICIAL CORRESPONDENCE 

TO THE BOARD 

AUG 31 2007 

Paul E. Glotzer, Esq. 

Cleary Gottlieb Steen & Hamilton LLP 

One Liberty Plaza 

New York, New York 10006 

Dear Mr. Glotzer: 

This letter concerns the notice filed July 5, 2007, under section 4 of 

the Bank Holding Company Act ("BHC Act") by BNP Paribas ("BNPP"), Paris, 

France, to engage on a limited basis in physical commodity trading activities 

("Commodity Trading Activities") in the United States.1 

BNPP states in the notice that it currently engages in commodity 

derivatives activities that are permissible for bank holding companies under the 

BHC Act ("Commodity Derivatives Activities"). These activities include 

trading in cash-settled swaps, forwards, options, and other derivatives based on 

commodities.2 BNPP has requested approval to expand its current trading 

activities in the United States to include engaging in physically settled 

commodity derivatives, taking or making delivery of commodities in settlement 

of those derivatives, taking inventory positions in physical commodities, and 

trading in the spot market in physical commodities. 

The Board has previously determined that taking and making 

delivery of a physical commodity complements the financial activity of 

1 BNPP would engage in Commodity Trading Activities through a wholly 

owned U.S. subsidiary, which would be either a newly established limited 

liability company or an existing inactive subsidiary company of BNPP. 

2 12 CFR 225.28(b)(8)(ii). 
2 

engaging regularly as principal in Commodity Derivatives Activities based on 

that commodity pursuant to Regulation Y.3 The Board has delegated to the 

Director of the Division of Banking Supervision and Regulation, with the 

concurrence of the General Counsel, the authority to approve requests by 

financial holding companies to engage in Commodity Trading Activities as an 

activity that is complementary to Commodity Derivatives Activities, if the 

proposal meets the conditions imposed by the Board in approving previous 

requests to engage in Commodity Trading Activities and does not raise 

significant legal, policy, or supervisory issues.4 

In evaluating the risks posed by the proposal, the Director and the 

General Counsel have considered that BNPP already incurs the price risk of 

commodities through its Commodity Derivatives Activities. Permitting BNPP 

to engage in the limited amount and types of physical commodity trading 

activities described above, within the limits described in the appendix to this 

letter, would not appear to increase significantly its potential exposure to 

commodity price risk. To minimize potential increased risks associated with the 

Commodity Trading Activities (including, but not limited to, storage, 

3 See 12 CFR 225.28(b )(8)(ii); Board Letters regarding Bank of America 

Corporation (April24, 2007), Credit Suisse Group (March 27, 2007), Fortis 

S.A./N.V. (September 29, 2006), and Wachovia Corporation (April 13, 2006); 

Societe Generale, 92 Fed. Res. Bull. C113 (2006); Deutsche Bank AG, 91 Fed. 

Res. Bull. C54 (2005); JPMorgan Chase & Co., 91 Fed. Res. Bull. C57 (2005); 

Barclays Bank PLC, 90 Fed. Res. Bull. 511 (2004 ); UBS AG, 90 Fed. Res. Bull. 

215 (2004); and Citigroup Inc., 89 Fed. Res. Bull. 508 (2003). 

4 BNPP has indicated that the transactions in which it intends to engage after 

approval of this notice include, among other things, volumetric production 

payment transactions ("VPPs") on oil or natural gas. VPPs are considered 

permissible credit transactions under 12 CFR 225.28(b )(1) if a bank holding 

company sells any commodities it receives under the VPP to third parties prior 

to delivery. See Letter from Scott G. Alvarez, Esq. to Elizabeth T. Davy, Esq., 

dated May 15, 2006. BNPP would rely on approval of this notice to retain 

ownership of commodities delivered to it under a VPP. BNPP has committed to 

the Board in connection with this notice that the market value of any such 

commodities it retains would be included in the limit of 5 percent of tier 1 

capital on the value of its physical commodity inventory, as detailed in the 

appendix to this letter. 
3 

transportation, legal, and environmental risks), BNPP has committed to the 

Board that in the United States it will not (i) own, operate, or invest in facilities 

for the extraction, transportation, storage, or distribution of commodities; or 

(ii) process, refine, store, or otherwise alter a physical commodity itself BNPP 

has further committed to the Board that it will limit the aggregate market value 

of physical commodities that it and any of its subsidiaries hold at any one time 

to 5 percent of BNPP' s tier 1 capital. In addition, BNPP has established and 

maintained policies and systems for monitoring and controlling the risks 

associated with the Commodity Trading Activities. Going forward, BNPP is 

expected to continue to maintain effective risk-management policies and 

systems for its Commodity Trading Activities. Approval of the proposal would 

likely benefit BNPP's customers by enhancing BNPP's ability to provide 

efficiently a full range of commodity-related services and improving its 

understanding of the commodity markets. 

Based on the record, including all the commitments made to the 

Board in connection with the notice and the conditions imposed by the Board in 

previous cases, the Director, with the concurrence of the General Counsel, has 

determined that the proposed Commodity Trading Activities are complementary 

to the Commodity Derivatives Activities conducted by BNPP; that the proposal 

does not appear to pose a substantial risk to BNPP, depository institutions 

operated by BNPP, or the financial system generally; and that the proposal can 

reasonably be expected to produce benefits to the public that outweigh any 

potential adverse effects. 

In making these determinations, the Director and the General 

Counsel relied on all the information, representations, and commitments 

provided by BNPP to the Board in connection with the notice and, in particular, 

the commitments set forth in the appendix to this letter and those conditions 

contained in the previous decisions noted above regarding these activities. 

These commitments and conditions are critical to the determination that the 

Commodity Trading Activities would not pose a substantial risk to the safety 

and soundness ofBNPP, other financial institutions, or the financial system 

generally. These commitments and conditions are deemed to be conditions 

imposed in writing by the Board in connection with the notice and this approval 

and, as such, may be enforced in proceedings under applicable law. This 

determination is also subject to all the conditions set forth in Regulation Y, 
4 

including those in section 225.7,5 to the conditions contained in the Board's 

previous decisions noted above regarding these activities, and to the Board's 

authority to require modification or termination of the activities of a bank 

holding company or any of its subsidiaries as the Board finds necessary to 

ensure compliance with, or to prevent evasion of, the provisions and purposes of 

the BHC Act and the Board's regulations and orders issued thereunder. 

Attachment 

Sincerely yours, 

terson 

Deputy Secretary of the Board 

cc: Federal Reserve Bank ofNew York 

5 12 CFR 225.7. 
5 

Appendix 

Commitments 

1. BNPP commits to the Board of Governors of the Federal Reserve System 

("Board") that it will limit the aggregate market value of physical commodities 

that it holds at any one time as a result of the Commodity Trading Activities to 

5 percent of BNPP' s consolidated tier 1 capital. BNPP will include in this 

5 percent limit the market value of any physical commodities it holds as a result 

of a failure of reasonable efforts to avoid taking delivery in commodities 

transactions conducted pursuant to section 225.28(b)(8)(ii)(B) ofRegulation Y. 

In addition, BNPP agrees to notify the Federal Reserve Bank ofNew York if the 

aggregate market value of commodities held by it under the approval exceeds 

4 percent ofBNPP's consolidated tier 1 capital. 

2. BNPP commits to the Board that it will assure proper risk management and 

controls over the Commodity Trading Activities. BNPP will apply the control 

infrastructure that it has developed and tested with respect to Commodity 

Derivatives Activities to its Commodity Trading Activities. 

3 BNPP commits to the Board that it will take and make physical delivery of, or 

store, only commodities for which derivative contracts have been authorized for 

trading on U.S. futures exchanges by the Commodity Futures Trading 

Commission (unless specifically excluded by the Board) or other commodities 

that have been specifically authorized by the Board. 

4 In the United States, BNPP commits to the Board that it ( 1) will not own, 

operate, or invest in facilities for the extraction, transportation, storage, or 

distribution of commodities (except in satisfaction of debts previously 

contracted or in connection with a nonperforming loan, or where such 

investment is otherwise permissible for a financial holding company); (2) will 

act solely as a financial intermediary in the physical commodities markets; 

(3) will not process, refine, store, or otherwise alter a physical commodity; and 

( 4) in conducting Commodity Trading Activities, will contract with a third party 

for any services that are needed in connection with the handling of any 

commodity and use appropriate storage and transportation facilities owned and 

operated by third parties. 
6 

5. In the United States, BNPP commits to the Board that it will only use storage 

and transportation facilities owned and operated by third parties, and will enter 

into service agreements only with accredited, reputable independent third-party 

facilities. 

6. BNPP commits to the Board that it will conduct the Commodity Trading 

Activities in the Unites States exclusively pursuant to the authority of section 4 

of the BHC Act and in accordance with the limitations that the Board has placed 

on the conduct of such activities, and will not conduct such activities in the 

United States in reliance on section 2(h)(2) of the BHC Act or 211.23(f)(5) of 

the Board's Regulation K. 

7. BNPP commits to the Board that it will not, without prior Board approval, 

enter into any physically settled tolling agreements in the United States.