Fed and BoE Probe Banks Over Trading Firm Exposure
The Federal Reserve and Bank of England are probing global banks about their exposure to large trading firms following a market shock that left Jane Street with a $15 billion loss.
The inquiry comes after Situational Awareness, an AI-focused hedge fund run by Leopold Aschenbrenner, was forced to sell most of its public equities portfolio to Citadel Securities in July, contributing to Jane Street's losses.
Central bank officials are seeking information on the risk appetite of trading firms and how banks' exposure evolved during the trading day. Regulators are concerned that banks may be shouldering excessive risk through their relationships with trading firms.
If regulators conclude that banks are taking on too much risk, they can require those banks to hold additional high-quality liquid assets as a buffer.