May 23, 2006

Skepticism on Hedge Fund Rules

According to Ben Bernanke, US Federal Reserve Chairman, allowing hedge funds and trading partners to manage risk and impose discipline in the sector is the economic need of the hour. However, he had expressed skepticism about proposals to give regulators more powers and authority.

Recently, the German central bank made a proposal that the world's hedge funds should open up their books for public grading by rating agencies. Introducing a code of conduct is part of a self-regulation initiative to start a debate on how to avoid disasters in hedge funds. Hedge funds help improve the functioning of financial markets. However, it is better to take precautionary measures rather than waiting until a market crisis happens.

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Mr Bernanke, who was speaking at a Sea Island, Georgia conference sponsored by the Federal Reserve Bank of Atlanta, raised caution about regulators taking an overly heavy hand.

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