Two years ago, I interviewed several top-level executives at a handful of banks and prime brokers where I asked if they understand the risk of handing cheap leverage to their hedge fund clients.
What I mean by cheap financing, is that the prime broker is charging extremely low rates for hedge funds to borrow cash to make big bets through complex financial instruments.
The response I got back was mixed:
“I scratch my head and wonder, ‘do people understand the risk?’, whether that is liquidity risk or other financing risks,” said one head of prime services at a Wall Street bank. “In my career, I have defiantly seen people try to capture market share, and a way to capture market share is to lower rates,” another said.
The full article is available at https://www.thetradenews.com/blog/archegos-capital-fallout-may-force-wall-street-to-review-its-secret-tools-to-win-business/