The U.S. Treasury plans to examine the role hedge funds, private equity funds and derivatives play in financial markets, according to Randal K. Quarles, undersecretary of the Treasury for domestic finance.
"Looking forward, the Treasury will be focused on seeking to understand in the most comprehensive way possible whether and how changes in the structure of the financial services industry have affected the way markets operate ... whether the growth of certain types of institutions or instruments have materially affected the efficiency with which markets intermediate risk, whether risk is placed or pooled in different ways or different places than it has been in the past - and if so, what appropriate policy responses might be," he said in prepared remarks to the Institute of International Bankers' annual Washington conference today.
Treasury officials hope to "understand and stay well ahead" of the risks in financial markets, specifically whether growth in investments like derivatives and hedge funds could alter the level or nature of risk in both markets and financial firms, Mr. Quarles, said.
"For instance, derivatives now serve a key role in our capital markets primarily by increasing efficiency, liquidity and the ability to segregate and distribute risk," he said. "We at Treasury, given the explosion in the type and use of derivatives, and institutions that use them, want to ensure that the magnitude of risk and exposure are properly measured and that investors and market participants have full and adequate disclosure upon which they can make informed decisions."