Need for hedge fund disclosures stressed
SINGAPORE: Countries should require large hedge funds to disclose their
capital size and the amount of borrowed money they're using, a group of
finance officials from the world's richest countries said on Sunday.
The Financial Stability Forum, which met on Saturday and Sunday in
Singapore, said such disclosure would help stabilize the global economy and
prevent financial crises like the one that battered Asia in 1997 and 1998.
Hedge funds are highly leveraged investment devices such as Long-Term
Capital Management, whose near collapse in 1998 sent shock waves through
global financial markets.
While the forum stopped short of recommending direct regulation of hedge
funds, delegates warned that they would not discard the idea entirely.
"What we favour is a requirement for disclosure of the total size of the
funds, and the leverage, which would apply to funds with a capital of larger
than $1 billion," said Howard Davis, chairman of the United Kingdom
Financial Services Authority.
"But we recognize that that is based on a belief that as long as you can
shine light on this industry, the market will discipline itself," Davies
added. "And we recognize that that may not happen. Therefore we keep direct
regulation on the table," he said at a news conference after the Singapore
meeting.
The Financial Stability Forum is composed of finance regulators from the
world's seven richest industrial countries, as well as major developing
nations and multinational finance organizations, including the International
Monetary Fund.
The group held discussions in Singapore and released the findings of three
task forces created last year to study ways to improve the global financial
architecture.
The forum's chairman is Andrew Crockett, general manager of the Bank for
International Settlements in Switzerland, which serves as an international
coordinating group for the world's central banks. The forum on Sunday also
recommended a "code of good practice" for hedge funds and other highly
leveraged institutions operating in countries with small or medium sized
markets, as such firms have been blamed for destabilizing national
economies. "Large elephants in small ponds may drain away liquidity for the
rest of the denizens of the ponds, and create problems," Davies said.
Davies praised U.S. legislators' proposals to require disclosure from hedge
funds and other highly leveraged institutions, and called for "complimentary
provisions elsewhere."
The institutions "shouldn't be able to flit over to London or to Grand
Cayman in order to evade that disclosure requirement," he said.
The forum also concluded that some offshore banking centers "have adverse
implications for global financial stability," said John Palmer, Canada's
superintendent of financial institutions. Offshore centers did not appear to
have cause past episodes of financial instability around the world, Palmer
said.
"But in many cases, offshore centers were involved," he said. The forum
recommended closer supervision of offshore centers by the countries in which
they're located.
The Financial Stability Forum also recommended that national authorities set
up structures to manage the risks that "large and volatile capital flows"
pose to their economies, the forum said in a statement.(AP)
For reprint rights: Times Syndication Service
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