Banks Credit Hedge Funds
Federal Reserve Says Banks Eased Credit to Hedge Funds
The Federal Reserve--rarely the bearer of good news in the last 2-3 years--has announced that banks eased credit to hedge funds in the fourth quarter of 2010. Despite slight improvements in the economy during 2010, banks seemed reluctant to extend credit to hedge funds and private equity firms until Q4.
Wall Street’s largest dealers during the fourth quarter eased credit terms to hedge funds and private-equity firms that borrow against securities while provisions for private derivatives trades were little-changed, according to the Federal Reserve.
More banks said credit terms “eased somewhat” than said terms “tightened somewhat” in the three months ended in December, the Fed said today in its December 2010 financing survey. Hedge funds and other investors tried harder to negotiate favorable price terms for deals, with 55 percent of dealers saying that clients “increased somewhat” or “increased considerably” their demands for concessions.
Increased competition from rivals and improvements in the general market functioning were the main reason that terms were loosened, according to the survey released by the Fed in Washington. Nine out of 10 respondents cited each factor as “very important” or “somewhat important” in their easing of terms. Source
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