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To: PaulM who wrote (22234)	10/25/1998 11:52:00 PM
From: Alex	Read Replies (3) \| Respond to of 116796

Push is on to clip hedge funds From AFP 26oct98 ONE of the world's leading central bankers yesterday backed global pressure for regulation of international hedge funds by calling for indirect controls on the institutions that lend them money. New York Reserve Bank president Bill McDonough said attempts to regulate the hedge funds directly would not work but argued they could be regulated indirectly through tighter control of their "counterparties" like securities firms and banks. Mr McDonough is in Sydney where he attended a meeting last week of central bankers trying to find solutions to the deepening global economic crisis. Pressure, led by US President Bill Clinton, is mounting for regulatory controls to tame the worst excesses of the free market, like the hedge funds blamed for targeting Asian currencies and crippling their economies. The Australian Government has also called for tighter regulation of hedge funds, with Treasurer Peter Costello arguing on Friday that they should face more disclosure and supervision of their activities. But nobody has so far devised a strategy to regulate the hedge funds because they are generally incorporated in offshore centres without strong regulatory structure. Malaysian President Mahathir Mohamad, who blames the hedge funds for his country's woes since mid-1997, last month hit back with a fixed exchange rate of 3.80 ringgit per US dollar and rendered the ringgit non-convertible. Mr McDonough told Channel Nine's Business Sunday program that regulators would have to make sure regulations made sense from a market freedom point of view. "If we can reach that conclusion that would make sense," he said. "I believe that getting international co-operation would not be difficult." Direct regulation "wouldn't work", he said. "But regulating them indirectly through closer control of their counterparties – the securities firms, banks, insurance companies – that has a much higher likelihood of working, and I think we'll be doing that." Another international financial expert, Bank for International Settlements general manager Andrew Crockett, also backed indirect controls on the banks lending to hedge funds. "We've seen some hedge funds that essentially make money by propagating volatility in markets," he said. "I know the people in Hong Kong feel very bruised by what happened to them as a result of hedge funds' activities." Mr Crockett said that if something was not done a lot more thought would be given to initiatives such as the bans imposed by Malaysia, although he thought that was not the correct solution. "You can see if the world economy can't deliver more stability there is going to be a lot more support for that kind of argument," he said. He said one way would be to regulate the hedge funds themselves, but he acknowledged the difficulty of getting at them directly because they were incorporated in offshore centres. "Another way of getting at it since hedge funds operate by leverage – they borrow from banks in order to leverage to a higher position – is to implement controls over banks' activities," he said. "I think that we need to give thought as to whether the manner to which the banks lend to hedge funds, how they collateralise their lending, we need to give thought to whether that should be modified." theaustralian.com.au