Financial stability council to reconvene hedge fund working group

The council created under the 2010 Dodd-Frank Act to monitor financial system stability will reconvene a hedge fund working group that last reported to the council in 2016, according to a readout of a meeting March 31.

The Financial Stability Oversight Council (FSOC), headed by Treasury Secretary Janet Yellen and with an additional 14 members (five non-voting), met Wednesday to discuss climate change as well as recent market developments related to hedge fund activities. At Yellen’s request, the council is reconvening its Hedge Fund Working Group, which was created to gauge and address potential risks the funds pose to financial stability.

The council also received an update from the Securities and Exchange Commission (SEC) regarding open-end mutual fund performance during the COVID-19 crisis, including a discussion of fund outflows and liquidity risk management efforts during that period. “Chairperson Yellen asked interagency staff to assess potential financial stability risks associated with open-end funds, particularly focusing on liquidity risks,” according to a readout of these portions of the meeting, which were closed to the public.

During the public portion of the meeting, the council received a presentation from Federal Reserve Board staff about climate change and its potential impact on financial stability. “The presentation highlighted the channels through which climate change could pose risks to the financial system and work the Federal Reserve is undertaking to monitor and better understand climate-related risks to financial stability,” the readout notes.

The Fed governors have been discussing climate change and its risks to the financial system in numerous venues. Wednesday’s meeting also included discussion of council member agencies’ actions or planned actions addressing such risks.

Readout of Financial Stability Oversight Council Meeting on March 31, 2021