Lessons From The Collapse Of Hedge Fund,...
   Case setup
   Post mortem
   Corrective response
   The losers


















 

Lessons From The Collapse Of Hedge Fund, Long-Term Capital Management (by David Shirreff)

Corrective response

The Basle Committee on Banking Supervision's report on highly leveraged institutions (HLIs) in January 1999 suggests that supervisors demand higher capital charges for exposure to highly leveraged institutions where there is no limit to overall leverage: "Possibly all exposures to all counterparties not covered by covenants on leverage should carry a higher weight." It further considers the possibility of extending a credit register for bank loans in the context of HLIs. "The register would entail collecting, in a centralized place, information on the exposures of international financial intermediaries to single counterparties that have the potential to create systemic risk (ie major HLIs). Exposures would cover both on and off-balance-sheet positions. Counterparties, supervisors and central banks could then obtain information about the overall indebtedness of the single counterparty."

Case Studies * Lessons From The Collapse Of Hedge Fund, Long-Term Capital Management (by David Shirreff)