Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/60660
Authors: 
Kambhu, John
Schuermann, Til
Stiroh, Kevin J.
Year of Publication: 
2007
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 291
Abstract: 
Hedge funds are significant players in the U.S. capital markets, but differ from other market participants in important ways such as their use of a wide range of complex trading strategies and instruments, leverage, opacity to outsiders, and their compensation structure. The traditional bulwark against financial market disruptions with potential systemic consequences has been the set of counterparty credit risk management (CCRM) practices by the core of regulated institutions. The characteristics of hedge funds make CCRM more difficult as they exacerbate market failures linked to agency problems, externalities, and moral hazard. While various market failures may make CCRM imperfect, it remains the best line of defense against systemic risk.
Subjects: 
banks, counterparty credit risk management, liquidity
JEL: 
G12
G21
Document Type: 
Working Paper

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