Fed, BoE Scrutinize Bank Exposure to Trading Firms After $15 Billion Loss

The US Federal Reserve and the Bank of England are stepping up scrutiny of bank exposure to large trading firms following a significant loss at hedge fund Situational Awareness. The AI-focused fund, run by former OpenAI researcher Leopold Aschenbrenner, was forced to sell most of its public equities portfolio to Citadel Securities after a sharp sell-off in AI and chip stocks. This contributed to Jane Street taking a $15 billion hit last month.

The central banks are seeking information on the trading firms' risk appetite, how banks' exposure to them evolved throughout the trading day, and how risk controls operated.

Last month, the US Securities and Exchange Commission subpoenaed Wall Street banks, including Goldman Sachs, JPMorgan, Citigroup, and Bank of America. It was examining Situational Awareness' trading activity and use of leverage following its near-collapse.