A two-year Senate investigation into Wall Street’s physical commodities business found that U.S. banks had manipulated prices and gained unfair trading advantages at the expense of consumers.

While the detailed report was critical of how banks purchased and exploited huge commodity stockpiles, it did not offer any damning new details on their activities.

Goldman Sachs Group Inc (GS), Morgan Stanley (MS) and J.P. Morgan (JPM) built huge inventories of aluminum, oil, jet fuel and other commodities, the report said, and failed to properly insulate themselves from large, potential losses stemming from the stockpiles.

The report, based on 90,000 pages of bank and regulatory documents as well as 78 interviews and briefings, stems from a probe by the Senate’s Permanent Subcommittee On Investigations that began in 2012 and focused on Wall Street’s involvement in the physical commodities industry.

“We found substantial evidence that these activities expose major banks to catastrophic risks … that could result in losses that exceed bank capital reserves and insurance coverage and thereby threaten the stability of the financial system,” committee Chair Carl Levin, a Michigan Democrat, said at a news briefing.

According to a previously unpublished 2012 analysis by the Federal Reserve Commodities Team, the report said, four major financial holding companies – including the three highlighted in the Senate report – had allocated an inadequate amount of capital and insurance to cover “extreme loss scenarios.”

“Each had a shortfall of $1 billion to $15 billion,” it said.

The 403-page document, which comes in the final weeks of Levin’s role as chairman of the committee, stresses the need to separate banking from commerce and to prohibit the exploitation of commodity prices.

While the report sheds some new light on the size, impact and risks associated with the three banks’ commodities arms, it does not contain any major bombshells or smoking guns.

It also points the finger at the Federal Reserve, saying the central bank has taken insufficient steps to address the risks taken by financial holding companies gathering physical commodities. The Fed in some cases was unaware of the growing risk, the report said.

For instance, Fed personnel told the committee that the nation’s banking regulator had been unaware that Morgan Stanley was working on a pioneering project to export compressed natural gas from a Texas port until a media report in August 2014, when Reuters first wrote about the novel plan.

Morgan Stanley officials told the committee that they provided an “initial, oral notice” to the New York Fed in November 2013.

Merry-go-round
The impact of banks on commodity prices seized the spotlight in July 2013 when the New York Times detailed what it called a “merry-go-round of metal” involving the movement of aluminum between warehouses by Metro International Trade Services – a Goldman Sachs subsidiary – as a way to exploit London Metal Exchange (LME) pricing regulations.

Metro soon became the center of controversy after big consumers such as MillerCoors LLC and Coca-Cola Co accused warehouses and their owners of exploiting the LME storage rules to boost rental income, distort supplies and inflate physical prices of aluminum.

The Senate report released on Wednesday supported the claim that Metro took advantage of pricing rules and created long queues of aluminum, which in turn drove up its market value.

The committee probe found that a major reason why it took longer to move aluminum out of Metro’s Detroit warehouse operation was a number of large warrant cancellations by a small group of financial institutions, including Deutsche Bank, London hedge fund Red Kite, commodities trader Glencore, J.P. Morgan and Goldman.

Senior bankers from Goldman, J.P. Morgan and Morgan Stanley will appear as part of a two-day committee hearing on the issue starting on Thursday.

Bank response
Goldman on Wednesday said in a fact sheet that it did not engage in improper “merry go round” transactions. The bank said the Times’ July 2013 article suggests the movement of aluminum between warehouses caused the metal to be less available or more expensive.

“This is simply false,” Goldman said in the document. “Metro always complied with owners’ instructions as to the movement of metal, its activities complied with LME rules and did not impact the cost that Americans pay for cans of beer.”

Goldman is in the process of selling Metro, though details of bidders and timing remain unclear. Unlike many of its rivals, Goldman has maintained that commodities is core to its business.

J.P. Morgan, also on Wednesday, said in a fact sheet that it operates its commodities business in conformity with applicable rules. The committee report was critical of J.P. Morgan for a large transaction involving its copper holdings, saying it exceeded a federal rule that limits banks to settling no more than 5 percent of their derivative transactions by taking physical delivery of commodities.

The bank acknowledged that a large client-initiated trade did exceed the limit in 2011.

“This is the only time that J.P. Morgan has exceeded the OCC limit in the roughly 20 years it has been in place,” the bank said, referring to the Office of the Comptroller of the Currency.

As for Morgan Stanley, the report takes aim at the large inventories of oil, natural gas and jet fuel that the bank amassed.

“Morgan Stanley is proud of its comprehensive approach to risk management, which has enabled the firm to manage its commodities business prudently and effectively over the last three decades,” the bank said in a statement.