The European Union internal markets commissioner Charlie McCreevy has called for regulators to monitor brokers’ and banks’ dealings more closely to avoid defaults for their clients at hedge funds.
McCreevy said that although there were safeguards already in place, increased scrutiny should nevertheless be exercised over how margin calls and collateral are managed.
In a statement to announce a hedge-fund summit with the US Securities and Exchange Commission (SEC), McCreevy said, “in particular they need to focus on whether the collateralisation safeguards and margin calls that banks and prime brokers employ to reduce the risk of loss in the event of hedge fund default are sufficiently robust to cope with a disorderly liquidation of markets.”
At a conference in Dublin last month, McCreevy said that the prolonged period of low interest rates combined with increased competition could see banks become less careful about the clients to whom they lend money. However, he said he was not intending to introduce new legislation to regulate lending, adding that he was not “trying to change the nappies of regulators, institutions or investors”.