Yellen Signals Scrutinizing Hedge Funds Is a Renewed FSOC Focus

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(Bloomberg) — President Joe Biden’s council of financial regulators signaled a sharpened focus on hedge funds and whether their trading and leverage poses dangers to the markets.

© Photographer: Drew Angerer/Getty Images Janet Yellen

Treasury Secretary Janet Yellen, speaking at a Wednesday meeting of the Financial Stability Oversight Council, said the group has revived a task force on hedge funds so agencies can better “share data, identify risks and work to strengthen our financial system.” The council was briefed in a separate private meeting on how the funds performed during the Covid-19 crisis, she said.

“The pandemic showed that leverage of some hedge funds can amplify stresses,” said Yellen, who leads FSOC.

Her comments come as the power of lightly regulated investment firms to roil financial markets was on full display in recent days. While not technically a hedge fund, the blowup of Bill Hwang’s Archegos Capital Management has sent shock waves through Wall Street, triggering billions of dollars of losses for banks and scrutiny from the Securities and Exchange Commission and other agencies.

© Bloomberg Janet Yellen, former chair of the U.S. Federal Reserve, speaks during a panel discussion at the Bloomberg New Economy Forum in Singapore, on Wednesday, Nov. 7, 2018. The New Economy Forum, organized by Bloomberg Media Group, a division of Bloomberg LP, aims to bring together leaders from public and private sectors to find solutions to the world’s greatest challenges.

FSOC, holding its first meeting since Democrats took the White House, is working to reinvigorate financial oversight after it fell into a lull during the Trump administration. Yellen said the council was also studying new rules for money-market mutual funds and would delve deeply into climate-related issues.

Global warming “is an existential threat to our environment, and it poses a tremendous risk to our country’s financial stability,” Yellen said, adding that the increasing frequency and intensity of storms could lead to severe disruptions in food and water supplies and cause increased unrest around the world.

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