US Fed, BoE Scrutinize Bank Exposure to Trading Firms Amid Rising Systemic Risks

The US Federal Reserve and the Bank of England are increasing scrutiny of bank exposure to large trading firms after Jane Street suffered a rare $15 billion loss in July due to turmoil at hedge fund Situational Awareness.

Jane Street's loss was triggered by forced asset sales linked to the collapse of Situational Awareness, which was run by former OpenAI researcher Leopold Aschenbrenner. The AI-focused fund was forced to sell most of its public equities portfolio to Citadel Securities after a sharp sell-off in AI and chip stocks.

The central banks are now seeking information on the trading firms' risk appetite, how banks' exposure to them evolved throughout the trading day, and how risk controls operated. Regulators have intensified oversight amid rising systemic risks from leveraged trading and non-bank trading counterparties.