# kaal:claim:3405660-023

**Claim.** Indirect regulation asks banks to fully assess the risk they incur from hedge fund counterparties, but that assessment is often dubious at best because of the opacity of hedge fund activity.

**Type.** failure  **Support.** argued

**Holds when.**

- banks face opaque hedge fund counterparties

**Source quote.**

> Regulators who regulate banks' risk management processes are in essence asking banks to fully assess the risks they incur in engaging with hedge funds as their counterparties. That assessment is often dubious at best.

**From.** Kaal, *Indirect Regulation of Hedge Funds* (2019), IV. Indirect Regulation, page 19

**Cite as.** Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660

**Verify.** sha256 of source PDF `cf507b1833071765bc13a5605f38c2591582eca85f40869e38b6ff075c04d29d` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Kaal%20-%202019%20-%20Indirect%20Regulation%20of%20Hedge%20Funds.pdf

**Failure mode.** unreliable counterparty risk assessment  (family: supervisory-capacity-gap)

**Topics.** risk-and-incentives, systemic-risk

**Keywords.** indirect-regulation, counterparty-risk, risk-assessment, bank-supervision

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