An article on Bloomberg caught my attention this morning.

The article titled “Wall Street Used Commodities Storage, Tankers for Unfair Gain, Senate Panel Finds” (click here to read) present the argument that “Wall Street’s biggest banks have used their ownership of metals warehouses, oil tankers and other commodities businesses to gain unfair trading advantages and dominate markets, according to a U.S. Senate investigation.” The main issue is that these banks “have eroded the line separating banking from commercial activities to the detriment of consumers and the financial system. The holdings give banks access to non-public information that could move markets and increase the likelihood that industrial accidents will spur taxpayer bailouts, the report said.”

Ok, so the banks have this inside knowledge that they created through ownership of multiple levels of the commodities chain but the biggest issue is that they are under funded to cover a major drop in such commodities. A 400-page report on Goldman Sachs (GS) Group Inc., Morgan Stanley and JPMorgan Chase & Co. referenced a 2012 Fed study of four banks that found each had capital and insurance shortfalls for commodity units of as much as $15 billion. That meant that if each bank experienced a catastrophe on the scale of BP Plc’s 2010 oil spill in the Gulf of Mexico, they couldn’t cover the losses.