kaal:claim:2714974-031

Banks are uniquely positioned to discipline hedge fund behavior because their role as lenders, market makers, and product creators lets them use the threat of cutting off future lending as leverage over a fund.

Because of their interaction with hedge funds, banks are uniquely positioned to use the threat of cutting off future lending to improve a hedge fund's behavior.

Kaal and Oesterle, The History of Hedge Fund Regulation in the United States (2016), INDIRECT HEDGE FUND REGULATION, p. 25
https://ssrn.com/abstract=2714974 · source PDF

Kaal and Oesterle, The History of Hedge Fund Regulation in the United States (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2714974

• depends on banks' ongoing lending and counterparty relationships with the fund

mechanismsupport: arguedsystemic-riskdefieconomicsprivate-funds

• extends kaal:claim:1806252-011 Banks' lending practices and counterparty credit risk management can curtail hedge funds' excessive risk takin...
• extends kaal:claim:2470008-013 The absence of financial market repercussions from the Amaranth failure suggests that indirect regulation of p...
• supports kaal:claim:1806252-002 Because hedge funds play a large role in the credit derivatives market and that market recently failed, an inc...
• supported_by kaal:claim:2998097-008 Fund managers are unlikely to escape bank based indirect supervision by terminating a lending relationship, be...

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