commodities ; certain types of commodity derivatives transactions settled by transitory title transfer ; the purchase and sale of coin and bullion, precious metals, and copper ; and the holding of physical commodities to hedge customer - driven, bank - permissible derivative transactions. under the glb act, congress created the financial holding company framework, which allowed bank holding companies with bank subsidiaries that are well capitalized and well managed4 to engage in expanded financial activities. 5 three provisions in the glb act have section 4 ( c ) ( 8 ) of the bank holding company act, 12 usc 1843 ( c ) ( 8 ). 12 cfr 225. 28 ( b ) ( 8 ). 12 usc 24 ( seventh ). in addition to the capital and management requirements, the glb act also requires the subsidiary depository institutions of financial holding companies to have at least a “ satisfactory ” rating under the community bis central bankers ’ speeches enabled certain financial holding companies to engage in commodities activities. the first provision – section 4 ( k ) ( 1 ) ( b ) of the bank holding company act – authorizes a financial holding company to engage in any activity that the board finds to be “ complementary to a financial activity. ” this provision in the glb act enables financial holding companies to engage in commercial activities that complement their financial activities, so long as the activities do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. 6 in reviewing requests for complementary authority, the board is required to consider whether performance of the activity can reasonably be expected to produce benefits to the public – such as greater convenience, increased competition, or gains in efficiency – that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. 7 beginning in 2003, the board issued a limited number of orders permitting individual financial holding companies to engage in specified commodities - related activities as complementary activities under this statutory authority. these activities included physical settlement of derivative contracts involving certain approved commodities and spot trading of those commodities. 8 a dozen financial holding companies currently have this 4 ( k ) authority. 9 in addition, a subset of these companies has been granted additional authority to engage in energy tolling and energy - management activities. energy tolling involves making fixed, periodic payments to power plant owners that compensate the owners for their fixed costs in exchange for the right to all or part of their plants ’ power output. energy - management activities

activities that could threaten its safety and soundness. federal reserve review of physical commodities activities this past january, the federal reserve invited public comment through an anpr on a range of issues related to the commodities activities of financial holding companies. the scope of our ongoing review covers commodities activities and investments under section 4 ( k ) complementary authority, merchant banking authority, and section & 4 ( o ) grandfather authority. recently, some of the financial holding companies engaged in physical commodities activities have publicly indicated that they are reducing or terminating some of these activities. as the anpr explains, we are exploring what further prudential restrictions or limitations on the ability of financial holding companies to engage in commodities - related activities as a complementary activity are warranted to mitigate the risks associated with these activities. such additional restrictions on complementary commodities activities could include reductions in the maximum amount of assets or revenue attributable to such activities, increased capital or insurance requirements on such activities, and prohibitions on holding specific types of physical commodities that pose undue risk to the company. we also are exploring what restrictions or limitations on investments made through the merchant banking authority would appropriately address those or similar risks. in response to the notice, the board received 184 unique comments and more than 16, 900 form letters. commenters included members of congress, individuals, public interest groups, academics, end users, banks, and trade associations. the comments present a range of views and perspectives. those opposed to financial holding company involvement in physical commodities activities argued that the different roles of financial holding companies in the commodities markets ( such as trading and credit ) allow these firms an unfair competitive advantage and present conflicts of interest in dealing with customers. they also contend that physical commodities activities pose a wide range of risks ( including compliance with environmental laws and potential market conduct issues ) to financial holding companies that are difficult for companies to measure and mitigate, and for regulators to monitor. on the other hand, a number of commodities end - users, including corporate treasurers and municipalities, as well as several trade associations and others, argued that financial holding companies provide valuable and hard - to - replace services to end - users. they also argued that financial holding companies are reliable and low - risk counterparties that enhance the efficiency of the commodities markets and provide additional liquidity to those markets. these commenters contended that financial holding companies can successfully mitigate the risks of commodities activities with robust risk management, insurance, and maintenance of appropriate corporate separateness. as would be expected from