Treasury Secretary Janet Yellen, on Wednesday (March 31), said that top financial regulators in the US will re-establish an Obama-era working group to scrutinise hedge funds in particular and study their risks and vulnerabilities. Last year, the Donald Trump administration had shuttered the working group.
The development assumes significance in the backdrop of the Archegos fiasco last week, where margin calls at the Bill Hwang-run family office triggered fire sales in around $30 billion worth of shares in the US market. This led to led to prices of stocks like ViacomCBS, Discovery crashing over 25 percent intra-day, and US-listed shares of China-based Baidu and Tencent Music plunging 33-48 percent.
Yellen, the first woman to lead the US Treasury department, told regulators at the Financial Stability Oversight Council (FSOC) that heightened scrutiny was required after the COVID-19 pandemic showed hedge funds can increase market instability at times. The FSOC is a group led by the Treasury Secretary.
A report in The New York Times quoted Yellen as saying: “This council used to have a hedge fund working group, and as of today, we have one again. We’re re-establishing the working group so that we can better share data, identify risks and work to strengthen our financial system.”
Yellen was presiding over the first meeting since President Joe Biden took office of the FSOC. The meeting was closed to the public. Her revival of the group is the latest sign the Biden administration could pursue stricter rules on the growing nonbank portion of the financial system, said a Reuters report.
To address weaknesses in money market funds and open-end mutual funds, Yellen said that she would direct an interagency review to determine if more needs to be done. Last year, in March, a highly leveraged trade went awry, causing hedge funds to dump Treasury bonds.
During a webcast portion of the meeting, the council discussed risks to the financial system on account of climate change. Calling climate change the biggest emerging risk to the US financial system, Yellen pledged to direct regulatory forces to guard against its harmful effects.
The New York Times reported quoted her as saying that the “council has an important role to play, helping to coordinate regulators’ collective efforts to improve the measurement and management of climate-related risk in the financial system.”
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