Wall Street firms that cannot legitimately profit in the power sector will leave the market in time, the top regulator for the U.S. electricity market said on Friday.
JPMorgan Chase & Co this week agreed to pay more than $400 million to settle charges of market manipulation brought by the nation's power regulator and the bank says it will wind down its entire commodity trading business.
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JPMorgan was not cut out for the power market, the regulator said, and other Wall Street giants who have strayed from their core lending business into the power sector could make a similar exit.
"I don't think I have to go crusading to Congress or other places and say we need to cordon off an entire sector of participants in the market," said Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission (FERC), who is set to step down from the post in coming months.
"I think they are going to self-select, as JPMorgan did, to understand that they are just not experienced enough to make money in this market legitimately."
The JPMorgan settlement is just one in a series of recent FERC actions against major banks accused of manipulating markets.
Barclays is fighting a record $453 million FERC fine for allegedly gaming markets while Deutsche Bank earlier this year settled a manipulation case for $1.5 million.
Wall Street is welcome in power markets, Wellinghoff said, but companies that are more interested in trades than delivering electricity might find it hard to thrive.
"(If) they have to engage in activities that are manipulative, inappropriate or outside the rules then we are going to come after them and stop them," said Wellinghoff.
Lawmakers have begun to question whether big banks should have large stakes in commercial ventures that are remote from their lending business. Two weeks ago the Federal Reserve said it was "reviewing" a 2003 decision that allowed commercial banks to trade in physical commodity markets.
Wellinghoff said on Friday that FERC does not need to set tougher standards for financial firms that play in the power sector than enterprises that principally generate or transmit electricity. Supervisors are equipped to give each enterprise its due scrutiny, he said.
(Reporting By Patrick Rucker in Washington; David Sheppard in New York contributed; editing by Andrew Hay)