Fed's Fischer Seeks Greater Oversight on Derivatives, Hedge Funds

Mar 27 2015 | 12:33pm ET

Federal Reserve Vice Chairman Stanley Fischer stated in a speech on Friday that hedge funds should be subject to greater scrutiny by federal regulators. 

Speaking in Frankfurt, Fischer noted that although the United States had made progress in reducing vulnerabilities in the non-bank financial sector, hedge funds remained an exception. 

"Leverage at hedge funds, while difficult to measure…appears in aggregate to have trended upward in recent years," Fischer was quoted as saying in media reports. He added that despite improvement in the data available to them, federal regulators still did not have a "complete picture of the scope and size of hedge fund activities".

“For example”, Fischer noted, “outside of the banking system, we have only limited information on leverage and maturity transformation.”

During the speech, Fischer reminded the audience that the size of the U.S. non-bank financial sector has never been this large. He mentioned the Long Term Capital Management fiasco in 1998, and warned that the event was illustrative of systemic problems that can arise in the non-bank financial sector.

Fischer also drew attention to the rise of liquid instruments, like mutual funds and ETFs tracking indices based on illiquid instruments, such as credit default swaps. While the veneer of liquidity is offered to investors, Fischer pointed out that the underlying assets are hard to sell quickly, and thus make the funds vulnerable to liquidity risk.


In Depth

PAAMCO: Will Inflation Deflate the Asset Bubble?

Jan 30 2018 | 9:49pm ET

As the U.S. shifts from monetary stimulus to fiscal stimulus, market pricing should...

Lifestyle

CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Boost Hedge Fund Marketing ROI By Raising Your ROO

Feb 14 2018 | 9:57pm ET

Tasked with delivering returns on client capital, a common dilemma for many alternative...