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A statement following the FPC's latest meeting said: “The levels of leverage within, and therefore the vulnerability of, hedge funds needed to be looked at more closely".
An industry source said the regulator’s twice-yearly survey of London’s 50 biggest hedge funds had not flagged up potential risks from leverage. “Leverage among hedge funds is generally lower than banks”, he said.
The FPC, which made no further recommendations this month, said the “moderate” rise in long-term interest rates seen in recent months as the US Federal Reserve readies itself to slow stimulus and the economy gradually recovers “did not pose immediate threats to banks or insurers”.
It said rising interest rates “had not led to dislocations in market functioning or significant impact on financial institutions” but added that banks had failed to take full account of potential “amplification channels”, where individual institutions tightening rates or selling assets in response to a specific shock could cause knock-on effects on other banks.