US financial regulators are intensifying their oversight of hedge funds amid growing concern about the leverage these firms have piled on.
Treasury Secretary Janet Yellen announced Wednesday that the Financial Stability Oversight Council has relaunched a working group focused on hedge funds that will identify risks, share data and work to strengthen the financial system.
“The pandemic showed that leverage of some hedge funds can amplify stresses,” Yellen said in prepared remarks during her first meeting at the helm of FSOC.
The meeting comes just days after the implosion of a little-known hedge fund caused shockwaves on Wall Street and sizable losses for some big banks, though it was scheduled before those events occurred.
Yellen said regulators also need to address “vulnerabilities” laid bare by the “disruption” in the vast US Treasury market last year. Regulators signaled a new focus on the climate crisis, including market and credit risks from climate-related events and a “rapid transition” to a net-zero economy.
“We cannot only look back and learn the lessons of last year. We must also look ahead, at emerging risks. Climate change is obviously the big one,” Yellen said. “It is an existential threat to our environment, and it poses a tremendous risk to our country’s financial stability.”