Saturday, Jun 03, 2006

ECB warns on hedge fund risk

Times Online: ECB warns on hedge fund risk

HEDGE funds are creating a major risk to global financial stability, although there may be little that can be done to tackle the problem, the European Central Bank suggested yesterday.

In one of the starkest warnings yet from an official institution over the role of the burgeoning but secretive industry, the ECB sounded a note of alarm over the possible repercussions from any collapse of a hedge fund, or group of funds.

In its twice-yearly Financial Stability Review, the Frankfurt-based central bank also raised serious concerns over many hedge funds growing use of increasingly similar trading strategies.

It argued that this trend could lead to worldwide liquidity problems if a financial or economic shock led funds simultaneously to attempt to alter their trading positions.

The ECB suggested that the herd instinct among hedge funds posed a major risk for financial stability, which warrants close monitoring, despite the essential lack of any possible remedies.

Posted by cgnao @ 07:49 AM (498 views)
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