Reuters – The explosive growth and mounting integration of hedge funds into the world financial system has increased risks in the industry and needs scrutiny, central bank policy-makers and industryexperts warned.
Gathered at a two-day conference hosted by the Federal Reserve Bank of Atlanta on systemic risk, senior policy-makers said that the unregulated activities of hedge funds could have serious implications which are still not well understood.
“There is a dark side connected to financial integration. If shocks are large enough, the financial system becomes a risk-transmitter rather than a risk-disburser,” said Nigel Jenkinson, a director of the Bank of England.
“We may have fewer systemic events, but they will be larger,” he told a dinner at the Atlanta Fed on Monday.
Policy-makers want to pinpoint where the financial industry is vulnerable and, from the point of view of the Federal Reserve, how a crisis could spill over into the real economy and damage its goals of low inflation and sustainable growth.
