Fed, BoE Scrutinize Bank Exposure After Hedge Fund Collapse

The US Federal Reserve and the Bank of England are stepping up scrutiny of bank exposure to large trading firms, following significant losses at Jane Street. The AI-focused hedge fund Situational Awareness was forced to sell a large portion of its public equities portfolio after a sharp sell-off in AI and chip stocks, resulting in a $15 billion hit for Jane Street. The central banks are seeking information on the risk appetite of trading firms, how banks' exposure evolved throughout the trading day, and how risk controls operated.

The move comes after the US Securities and Exchange Commission subpoenaed Wall Street banks, including Goldman Sachs, JPMorgan, Citigroup, and Bank of America, to examine Situational Awareness' trading activity and use of leverage following its near-collapse. The SEC was looking into trades that triggered margin calls and communications with lenders.