HEDGE funds could face more regulatory difficulties on the near future as governments increasingly step into markets to control capital flows and promote stability, top Bank of England official Robert Jenkins said yesterday.
“The days of instant market pricing and limitless liquidity may be fading,” the financial policy committee (FPC) member warned a group of traders and investment managers.
“Confronted with sudden surges in cross border flows, elected governments will attempt to intervene in the interests of stability generally and to protect their taxpayers specifically,” he said.
“Short-selling bans in Europe and bond purchase penalties in Brazil are a foretaste of the future.”
Jenkins also highlighted the extraordinary damage to the single market caused by the Eurozone crisis, as a Greek exit from the Eurozone stops international investors putting cash into the country.
“In the absence of cross border risk, deposits in Dresden could fund assets in Athens. Trading books could boom confident that counterparty risk was free from concern for capital controls,” he explained.
“But the Greek turmoil has introduced a degree of doubt. The spectre of cross border risk is back.”