The Federal Reserve Board has opened public comment on a proposed rule intended to strengthen existing requirements and limitations on the physical commodity activities of financial holding companies.

The proposal “would help reduce the catastrophic, legal, reputational, and financial risks that physical commodity activities pose to financial holding companies,” the Board says in a statement.

A limited number of firms supervised by the Fed engage in physical commodity activities and investments. Some firms are permitted by law to engage in a broad range of physical commodity activities, including the extraction, storage, and transportation of commodities. Others may engage in more limited activities, including commodities trading. “The possibility of an environmental accident due to these activities presents significant risks to the firms,” the proposal says.

Based on a review of firms' physical commodity activities as well as comments received on a related advance notice of proposed rulemaking in 2014, the proposed rule would:

Require firms to hold additional capital in connection with activities involving commodities for which existing laws would impose liability if the commodity were released into the environment;

Tighten the quantitative limit on the amount of physical commodity trading activity firms may conduct;

Rescind authorizations that allow firms to engage in physical commodity activities involving power plants;

Remove copper from the list of precious metals that all bank holding companies are permitted to own and store; and

Establish new public reporting requirements on the nature and extent of firms' physical commodity holdings and activities.

Comments on the proposed rule will be accepted for 90 days after publication in the Federal Register.