Fed and BoE Scrutinize Bank Exposure to Trading Firms After $15 Billion Loss
The US Federal Reserve and Bank of England have stepped up scrutiny of bank exposure to large trading firms following turmoil at hedge fund Situational Awareness. The AI-focused fund, run by Leopold Aschenbrenner, a former OpenAI researcher, was forced to sell most of its public equities portfolio after a sharp sell-off in AI and chip stocks.
This triggered a $15 billion loss for Jane Street, a trading firm that had exposure to Situational Awareness. The central banks are now seeking information on the risk appetite of large trading firms, how banks' exposure to them evolved throughout the trading day, and how risk controls operated.
The US Securities and Exchange Commission (SEC) has already subpoenaed Wall Street banks, including Goldman Sachs, JPMorgan, Citigroup, and Bank of America, as part of an examination into Situational Awareness' trading activity and use of leverage.