Newsletter May 2007: Key forum urges action on hedge fund risks

BASEL – Leading financial authorities urged action in May to strengthen protection against potential systemic risks arising from hedge funds and other so-called highly leveraged institutions. The Financial Stability Forum, which brings together senior officials of central banks, supervisory agencies, finance ministries and international financial institutions, said there have recently been signs of erosion of ‘counterparty’ standards that reflect the strength of competition for hedge fund business. These signs complement other signals of complacency about risk-taking in financial markets, the Forum said in a report requested by the finance ministers and central bank governors of the Group of Seven (G7) group of leading economies. The report is an update of the group’s 2000 paper on highly leveraged institutions.