Highly leveraged institutions and financial stability: a case for regulation?

June 29, 2007
Second Conference on Law and Economics of Risk in Finance, University of St. Gallen, St. Gallen

Download file now

The file can be downloaded with the button below.


Highly leveraged institutions (HLIs), or hedge funds, are currently a hot topic. HLIs are perceived as an opaque and highly risky industry which is not subject to supervision. Furthermore, the importance of HLIs has grown tremendously in recent years. Against this backdrop, the speech raises the question of whether HLIs are indeed a threat to financial stability. And, if so, whether there is a need for regulation.

Because of its modest size, its heterogeneity and the fact that it is not involved in financial intermediation, the HLI industry is no direct threat to financial stability. It could, however, pose an indirect threat to financial stability should a shock to HLIs be transmitted to systemically important banks. Shocks could be transmitted because banks are exposed to HLIs in their role as counterparties and creditors. Potential regulatory measures should therefore focus on the link between the HLI industry and the banking industry.

Additional files

Related content


  • Jean-Pierre Roth
    Chairman of the Governing Board

Your settings

Required: These cookies (e.g. for storing your IP address) cannot be rejected as they are necessary to ensure the operation of the website. These data are not evaluated further.
Analytics: If you consent to this category, data such as IP address, location, device information, browser version and site visitor behaviour will be collected. These data are evaluated for the SNB's internal purposes and are kept for two years.
Third-party: If you consent to this category, third-party services (used, for example, to add social multimedia content to the SNB's website) will be activated which collect personal data, process these data, disclose them abroad - worldwide - and place cookies. The relevant data protection regulations are linked in the 'Privacy statement for the website of the Swiss National Bank'.

Choose your preferred settings:

This website uses cookies, analytics tools and other technologies to provide requested features, content and services, to personalise the content shown, to provide links to social media, and to analyse the use of the website in anonymised form for the purposes of improving usability. Personal data are also disclosed abroad - worldwide - to video service providers and the analytics tools of these providers are used. More information is available under 'Manage settings'.