FedFin Assessment:  Archegos Aftermath – Enforcement Now, Bank Rules to Come
The stunning collapse of the leveraged family office, Archegos, and its impact on the financial system has renewed calls for an array of regulatory initiatives. In this report, FedFin assesses the options readily at hand in the U.S. in the context of the broader rewrite of financial regulation already under way at the Treasury, FRB, SEC, and other federal agencies. Leveraged funds have been a financial-stability priority since the March 2020 dash for cash (see Client Report SYSTEMIC89); this case will only confirm those demanding action as evidenced yesterday as FSOC prioritized both open-end and hedge funds for immediate systemic review. In the near term, the banks directly involved in Archegos will be asked uncomfortable questions by examiners and Congress. Thereafter, we expect hedge-fund standards to emerge principally as adjuncts to broader efforts to stabilize short-term bond markets, with work initially focusing on transparency and expanding to direct leveraged-fund standards as events and political realities warrant.