MSNBC – Hedge funds may need to be regulated because of the increasing risk they could pose to the financial system, according to the head of the New York Federal Reserve.
Stepping into the highly charged debate about hedge fund regulation, Timothy Geithner, president of the New York Fed, said supervision of core banks and investment banks had encouraged the transfer of risk to unregulated institutions such as hedge funds.
Their growth was now increasing the risk that if they ran into problems, it could damage the regulated core.
In a speech in Hong Kong, Mr Geithner said that, for the moment, regulators should continue to focus on encouraging the banks and brokers that lend to hedge funds to improve their “counterparty discipline” of the funds.
But, over time, the growth in hedge funds “will force us to consider how to adapt the design and scope of the supervisory framework to achieve the protection against systemic risk that is so important to economic growth and stability.”
