Goldman's commodities risk taking falls Goldman Sachs has reduced its risk taking in commodities to the lowest in eight years, the clearest sign of how Wall Street is facing up to tighter regulation. Goldman is the largest bank in commodities by revenues. At its latest results presentation, the bank said on Wednesday it could have lost a daily $22m last year on average when measured by the so-called "value-at-risk" ratio, the lowest since 2004, when it was at $20m, and half the $44m of 2008, at the peak of the commodities boom. Daily value-at-risk (VAR) is a common industry yardstick used to measure potential losses, and also one of the few publicly available indicators of commodities trading within the banking industry. Wall Street banks do not usually publish their commodities revenues or profits. The sharp reduction in Goldman's VAR confirms that Wall Street banks are cutting their risk taking in commodities in the face of tighter regulation, as banks are abandoning proprietary trading because of the US Dodd Frank act, and lower profitability. Nonetheless, a lower VAR could also indicate that price volatility has fallen. For example, VAR levels were relatively low in 2009, but profitability in commodities surged nonetheless, industry executives note. Goldman's incoming chief financial officer, Harvey Schwartz, said that "virtually" all the drop in the bank's VAR - not only in commodities - in the last three months of last year reflected the "decline in market volatility," rather than reduced risk taking. In any case, the drop in VAR comes as industry executives signal a significant drop in commodities revenues across the industry. The overall commodities revenues in the banking industry fell to about $10-$11bn, down from a peak between 2006 and 2008 of about $16bn. The drop in revenues has coincided with the arrival of more banks into the commodities business, which has reduced revenues per bank. Goldman said that its overall fixed income, currencies and commodities generated revenues of $9.91bn in 2012, up 10 per cent from the previous year. "These increases were partially offset by significantly lower net revenues in commodities and slightly lower net revenues in currencies," the bank said. For nearly 25 years, Goldman and Morgan Stanley were a duopoly in commodities. Their size, particularly in oil, was so large that both won the moniker of the "Wall Street refineries." The first competitor to both investment banks did not arrive until a decade ago, when Barclays launched its own commodities businesses, followed more recently by JPMorgan. But the drop in profitability has forced a number of banks, including UBS, Crédit Agricole and Royal Bank of Scotland, to leave the sector. Others, including Deutsche Bank and Barclays, are reducing the scale of their businesses.