Federal Reserve Vice Chairman Stanley Fischer on Friday suggested that hedge funds deserve greater scrutiny from federal regulators. In a speech in Frankfurt, Germany, Fischer said that there was a clear trend toward reduced vulnerabilities in the nonbank financial sector in the U.S., but that hedge funds were an exception. "Leverage at hedge funds, while difficult to measure...appears in aggregate to have trended upward in recent years," Fischer said. He said regulators still didn't have a "complete picture of the scope and size of hedge fund activities," even though the data available has improved. The Fed Vice Chair reminded the audience of the collapse of Long-Term Capital Management in 1998. Even though the New York Fed arranged an industry rescue of the hedge fund, Fischer said that episode was "scary" and "a warning about problems that could arise in the nonbank financial system and spread wider."
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