EU regulator calls for more scrutiny from banks' supervisors

8 March 2007

The European Union's chief regulator has called for supervisors to monitor brokers' and banks' dealings more closely to avoid defaults for their clients at hedge funds.

Charlie McCreevy, EU internal markets commissioner, said that although there were safeguards already in place, nonetheless increased scrutiny should be exercised over how margin calls and collateral are managed.

In a statement to announce a hedge-fund summit with the US Securities and Exchange Commission, Mr McCreevy said: "In particular they need to focus on whether the collateralisation safeguards and margin calls that banks and prime brokers employ to reduce the risk of loss in the event of hedge fund default are sufficiently robust to cope with a disorderly liquidation of markets."

Last month at a conference in Dublin Mr McCreevy said that the prolonged period of low interest rates combined with increased competition could see banks become less careful about the clients to whom they lend money.

However, he said he was not intending to introduce new legislation to regulate lending, adding that he was not "trying to change the nappies of regulators, institutions or investors".

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