Wall Street banks have become heavily involved with physical commodities markets, increasing risks to financial stability, industry, consumers, and markets by price-fixing. A two-year investigation by the Senate Permanent Subcommittee has found that large American banks which possess warehouses of metals, oil tankers, and other essential commodities are rather vulnerable. For example, in 2010 British BP had to deal with a great number of lawsuits and multi-billion fines as a result of the disastrous explosion on its Deepwater Horizon oil rig in the Mexican gulf.
“Imagine if BP had been a bank, it could have led to its failure and another round of bailouts at the expense of tax payers,” Senator John McCain, the top Republican on the subcommittee, said.
The detailed investigation report reads, a 2012 study by New York Federal Reserve Bank found out that Goldman Sachs, Morgan Stanley, and JPMorgan did not put aside $15 billion for insurance to adequately prepare for the “extreme loss scenarios” involving commodities. The banks have taken big ownership stakes on essential commodities. It opened doors for them to influence the prices that consumers pay while also securing inside information about the markets that could be used by their own traders.
