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Federal Reserve proposes new limits on Wall Street energy bets

Oil storage and oil tanker
LeeYiuTung | Getty Images

The Federal Reserve on Friday outlined a plan to limit Wall Street bets on the energy sector by forcing enterprises like Goldman Sachs and Morgan Stanley to hold more capital against such investments.

Under current law, Goldman Sachs Group Inc and Morgan Stanley may invest in energy storage and transportation in ways that other banks can not but the Friday plan would make such bets more costly.

Those banks would have to hold more capital against energy and commodity investments and the Fed contemplated other restrictions like banning Wall Street control of power plants and prohibiting bank holding companies from owning copper.

At this stage the Fed plan is only a proposal, and subject to comment and change.

The Federal Reserve said the new measures would help shield banks and the broader financial system from a costly mishap like the 2010 Deepwater Horizon oil spill in the Gulf of Mexico.

Under the plan, Fed officials said, banks would have to hold roughly $1 in capital for every $1 of energy infrastructure they owned. That is the Fed's highest tariff for investments and only applies to investments deemed very risky.

Wall Street will have to offer roughly $4 billion in fresh capital to satisfy the proposal, which is now open to public comment.

Wall Street firms have already been scaling back their ownership of refinery, shipping and storage facilities in the face of scrutiny from regulators who have asked what benefit comes from banks in the raw material market.