Swiss central bank chair rejects regulation of hedge funds
Daily news headlines
Roth says hedge funds do not threaten financial stability
Jean-Pierre Roth, chairman of the Swiss National Bank, has said hedge funds do not threaten financial stability and that direct regulation would be difficult to justify.
“I do not see Highly Leveraged Institutions (HLI) as a direct threat to financial stability,” said Roth in a lecture on Highly Leveraged Institutions and Financial Stability: A Case for Regulation? at the University of St. Gallen in Switzerland on Friday. “The Achilles heel of the system is the link between HLIs and banks of systemic importance. Thus, the systemic risks originating from HLIs are better addressed through indirect measures aimed at the HLIs' counterparties and creditors, which are mostly large international banks.”
Roth pointed out that the collapse of the Amaranth hedge fund in 2006 “had only a small impact on the financial markets.” He also noted the industry’s relatively small size in comparison to the size of the global economy, and its diversity.
Roth advocated market discipline and best practice guidelines over direct regulation. “I assume market discipline to be more effective in the case of HLIs than in the case of banks for three reasons: (a) investors in HLIs are generally well-informed and relatively ‘sophisticated’; (b) the number of investors is small and (c) HLIs do not constitute an industry regarded as worth being rescued in terms of the public interest,” he said.
Hedge fund regulation is high on the economic agenda because of the industry’s strong growth. In May, the Financial Stability Forum released guidelines encouraging hedge funds to implement sound risk management systems, following a request from the G7 finance ministers and governors. The governors made the request at the February meeting of the Financial Stability Forum in Essen, Germany.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Risk management
Beware war exclusions in cyber insurance, risk managers told
Risk Live: Experts say policy wording is tightening up following rise in ransomware attacks
Top 10 operational risks for 2024
The biggest op risks for the year ahead, as chosen by senior industry practitioners
Top 10 op risks: AI fears drive cyber risk to record high
External fraud re-enters top 10; change management now a top five concern
Harsh judgements: why Stateside lenders are upping the Q-factor
As CRE stalls, qualitative adjustments are forming a larger part of US banks’ credit risk allowances
As FCMs dwindle, regulators fear systemic risk
Panellists highlight dangers of clearing membership becoming more concentrated
Bank credit risk: how well do you know your counterparties?
As financial markets evolve, evaluating the complex credit risk exposures of non-bank counterparties is crucial for effective risk management, says Quantifi’s Dmitry Pugachevsky
EU index managers face funding risks as US moves to T+1
Rotations from European to US assets will need prefunding due to slower EU settlement
CCPs show support for daily stress margin tools
Anti-procyclicality measure floated by HKEX official sparks interest from rivals including Nasdaq
Most read
- Top 10 operational risks for 2024
- Regulators’ FRTB estimates based on faulty premise – industry study
- Top 10 op risks: AI fears drive cyber risk to record high