Hedge Funds Systemic Risk
FSOC Report Finds Hedge Funds Pose a Systemic Risk
A report by the Financial Stability Oversight Committee has found that hedge funds and private equity firms pose a systemic risk. This is a troubling finding as financial firms that pose a systemic risk are expected to fall under the Federal Reserve's watch. This would also mean that regulators would require more information from hedge funds than they are currently required to provide.
The 80-page FSOC report, obtained by Bloomberg News, is intended to help regulators decide which non-banking financial institutions need Federal Reserve supervision.
The FSOC counts 10 members, including Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner, and was created as part of the Dodd-Frank financial reform law in 2010.
Significant redemptions by hedge-fund investors could “cause activity in some markets to freeze,” according to the February 3 report.
Hedge-fund industry lobbyists say the funds are not systemically important enough to warrant supervision by the Federal Reserve and that the costs involved in complying with additional regulation would put them at a disadvantage to their competitors. Source
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