Wall Street & Technology is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Trading Technology

03:50 PM
Connect Directly

European Central Bank: Fund Exposure Not a Danger, La Fayette Using FOFiX for Risk Analysis, and more

EU Banks Safe From Hedge Fund Exposure, La Fayette Implements FOFiX from RiskData, First Citizens Bank Licenses Client Acquisition Solution from Advisor Software

Hedge Fund Exposure Not a Danger to EU Banks

The European Central Bank noted the potentially dangerous areas of large EU banks' exposure to hedge funds in a new report. In general, the financial stability of EU banks is not at risk based on its exposure to hedge funds.

The study was conducted by the Banking Supervision Committee (BSC) of the European System of Central Banks. It is part of the BSC's continued efforts to obtain a complete understanding of the implications of rapid hedge fund activities on the European financial structure. The report examines the strength and significance of the links that have developed between large EU banks and hedge funds.

Overall, the report concluded that recent developments in the hedge fund industry likely do not pose a direct threat to the financial stability of the EU. The scope of EU banks' direct exposure to hedge funds varied considerably across countries, and most banks dealing extensively with hedge funds held specific guidelines and advanced risk management systems for this area of business.

However, several areas were highlighted for improvement in the report. These included banks' stress tests, which proved insufficient, the aggregation by banks of hedge fund exposures across the entire financial group, business area or geographical region, and the disclosure of information by hedge funds to investors.

These difficulties limit the transparency of hedge fund activities and make exhaustive analysis of hedge fund exposure risk by EU banks a particularly complex, and somewhat inconclusive, endeavor.

1 of 3
Register for Wall Street & Technology Newsletters
Exclusive: Inside the GETCO Execution Services Trading Floor
Exclusive: Inside the GETCO Execution Services Trading Floor
Advanced Trading takes you on an exclusive tour of the New York trading floor of GETCO Execution Services, the solutions arm of GETCO.