Have commodity trading houses become "too big to fail" ?

Lopez, Anas ; Piller, Robert (Dir.)

Mémoire de bachelor : Haute école de gestion de Genève, 2015 ; TDEE 254.

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    Summary
    Commodity trading is very important on a global scale, because of the nature of its activity - moving raw material from a place where it is abundant to a place where it is needed. Every country has resources, but no so many have all the goods they need. On a more than ever globalized world, commodity trading is necessary to help move the goods and create a balance between supply and demand and this job was done rather discreetly until the end of 2000s. However, throughout this decade, the sector of commodities gained impressive value and volume until the recession of 2007-2009, and even then, the market got rapidly back on its feet driven by numerous factors. In parallel, the real economy experienced one of its worse crisis ever and governments had no choice but to bail-out companies for massive amounts of money. The term “Too Big to Fail” started to be used again up to a point that it referred to more than just banks or insurers. The reaction from regulators was prompt and policymakers did not wait to see how the market would fare in the following years to launch far-reaching measures aiming to reform the financial system. And when known systemically important institutions were considered under control, the focus turned to commodity trading firms as this market was growing impressively fast. The systemic risk of those firms was and still is uncertain to watchdogs. This is why the question has been raised: have commodity trading houses become “Too Big to Fail”? Being a student in “Economie d’Entreprise” – the French equivalent of Business Administration – my studies focus on a wide range of tools and principles relating to economics. As I attended classes of my major “Commodity Trading”, my view of the sector grew larger, and I understood how big some firms can be and how important this market is. When I realized there was a debate surrounding the potential systemic risk of those firms I wanted to know more, and although I was studying this branch of the economy, I could not tell whether or not this was the case. So I wondered: have commodity trading houses really become “Too Big to Fail”? I decided to take a closer look and to seek for answers.