Close Menu
economyuae.comeconomyuae.com
    What's Hot

    Levi Strauss now expects sales to increase this year, despite higher tariffs

    July 10, 2025

    Trump’s Brazil tariff ‘sets a scary precedent’ given the U.S. has a trade surplus with the country, economists say

    July 10, 2025

    Lula seizes Trump tariff threat to revive re-election push

    July 10, 2025
    Facebook X (Twitter) Instagram
    Facebook X (Twitter) Instagram
    economyuae.comeconomyuae.com
    Subscribe
    • Home
    • MARKET
    • STARTUPS
    • BUSINESS
    • ECONOMY
    • INTERVIEWS
    • MAGAZINE
    economyuae.comeconomyuae.com
    Home » Top financial watchdog recommends limits on hedge fund leverage
    Company 

    Top financial watchdog recommends limits on hedge fund leverage

    Arabian Media staffBy Arabian Media staffJuly 9, 2025No Comments4 Mins Read
    Facebook Twitter LinkedIn Telegram Pinterest Tumblr Reddit WhatsApp Email
    Share
    Facebook Twitter LinkedIn Pinterest Email


    Stay informed with free updates

    Simply sign up to the Financial & markets regulation myFT Digest — delivered directly to your inbox.

    Hedge funds and other non-bank groups could face limits on the amount of leverage they can use and may have to provide more disclosure to regulators about their borrowing, under plans put forward by the world’s financial stability watchdog.

    The Financial Stability Board (FSB) said on Wednesday that its recommended measures — which follow a consultation announced late last year — were designed to tackle the build-up of leverage in non-banks, which “can be an important amplifier of stress. If not properly managed, it can create risks to financial stability.”

    The plans highlight the belief among central bankers and regulators that hedge funds and other non-bank actors such as private credit funds, which often make heavy use of leverage but enjoy lighter regulation than banks, pose one of the biggest threats to the global financial system.

    Regulators have warned about the so-called Treasury basis trade, a highly leveraged bet in which hedge funds short US government bond futures while borrowing money to take a cash position, hoping the two prices will converge. The unwinding of this trade was blamed for a sharp sell-off in bond markets in March 2020, while hedge funds were also widely seen as exacerbating Treasury market turbulence in April this year.

    On Wednesday, the Bank of England said it would consult on ways to address vulnerabilities in UK repo markets, with hedge fund borrowing reaching a record high of £77bn. A “small number of hedge funds” accounted for 90 per cent of net gilt borrowing, the BoE said.

    However, major hedge funds and private credit groups have criticised plans to restrict how much leverage they take on, setting up a stand-off between some of the world’s most powerful investors and top global regulators.

    The measures recommended by the FSB, which was set up by the G20 group of countries after the 2008 crisis to co-ordinate global financial regulation, include requiring non-banks to disclose more data on leverage, making more transactions centrally cleared, imposing tougher rules on borrowing via refinancing markets and even setting outright limits on leverage levels for some funds.

    It provided a range of options for national regulators to choose from to “help guide authorities in selecting, designing, and calibrating policy measures”, it added.

    The non-bank sector — which includes hedge funds, private equity, insurers and pension funds — has grown to almost half of global financial assets over the past decade, with “business models and strategies continuously evolving and often using leverage”, the FSB said. 

    It said the measures would allow national authorities to “identify financial stability risks created by non-bank financial intermediation leverage and have appropriate policy measures in place to address the risks that they identify”.

    The FSB also announced the creation of a new task force to identify and address areas where it lacks sufficient data on the build-up of leverage outside of banks. 

    The task force will be led by Andrew Bailey, who this month took on a three-year mandate as FSB chair alongside his role as Bank of England governor. It will start by conducting a test case on “leveraged trading strategies in sovereign bond markets”. 

    The FSB said it had “identified several data challenges that have hindered the effective assessment of non-bank sector vulnerabilities by authorities”. It plans to publish a report on sovereign bond leveraged trading strategies by the middle of next year.

    As well as bond market turmoil in the early stages of the coronavirus pandemic and earlier this year, regulators’ concerns intensified following the collapse of family office Archegos Capital Management four years ago, which left investment banks with $10bn of losses, and the UK gilt market crisis three years ago, which was triggered by derivative-linked strategies in pension funds.

    The FSB said there was a positive side to non-bank leverage, which “can enhance efficiency and support liquidity in financial markets”.

    But it added: “This is only feasible when leveraged entities maintain sufficient headroom to increase risk and leverage, including having sufficient liquidity.”



    Source link

    Share. Facebook Twitter Pinterest LinkedIn Tumblr Telegram Email
    Previous ArticleEFG Hermes advises on $190m investment in Alameda Healthcare
    Next Article Stablecoins could hurt bank profits, but not for a while: analyst
    Arabian Media staff
    • Website

    Related Posts

    Citadel Securities buys Morgan Stanley’s electronic options market making unit

    July 10, 2025

    Elon Musk is still the Tesla wild card

    July 10, 2025

    Trading firms Virtu and Citadel Securities clash over new options exchange

    July 10, 2025
    Add A Comment
    Leave A Reply Cancel Reply

    Top Posts

    10 Trends From Year 2020 That Predict Business Apps Popularity

    January 20, 2021

    Shipping Lines Continue to Increase Fees, Firms Face More Difficulties

    January 15, 2021

    Qatar Airways Helps Bring Tens of Thousands of Seafarers

    January 15, 2021

    Subscribe to Updates

    Your weekly snapshot of business, innovation, and market moves in the Arab world.

    Advertisement

    Economy UAE is your window into the pulse of the Arab world’s economy — where business meets culture, and ambition drives innovation.

    Facebook X (Twitter) Instagram Pinterest YouTube
    Top Insights

    Top UK Stocks to Watch: Capita Shares Rise as it Unveils

    January 15, 2021
    8.5

    Digital Euro Might Suck Away 8% of Banks’ Deposits

    January 12, 2021

    Oil Gains on OPEC Outlook That U.S. Growth Will Slow

    January 11, 2021
    Get Informed

    Subscribe to Updates

    Your weekly snapshot of business, innovation, and market moves in the Arab world.

    @2025 copyright by Arabian Media Group
    • Home
    • Markets
    • Stocks
    • Funds
    • Buy Now

    Type above and press Enter to search. Press Esc to cancel.