Financial regulators in the United States and abroad have for many years been guided by the principle that CCRM--not hedge fund regulation--is the optimal way to control hedge fund leverage and limit systemic vulnerabilities (see, for example, President's Working Group on Financial Markets , Financial Stability Forum [2000, 2007], Counterparty Risk Management Policy Group II , Financial Services Authority , Parkinson , and Bernanke ).
Alternatively, these findings may lend support to Rajan's (2005) assertion of herding behavior among asset managers generally, a concern also raised by the Counterparty Risk Management Policy Group II (2005) in what it calls "crowded trades," but disputed by EDHEC Risk and Asset Management Research Centre (2006).
The Counterparty Risk Management Policy Group II (2005), Mercer Oliver Wyman (2006), and the Financial Stability Forum (2007), for example, note improved risk management techniques by counterparties, improved supervision, more effective disclosure and transparency, strengthened financial infrastructure, and more effective hedging and risk distribution techniques.
A third alternative, discussed by the Financial Services Authority (2005) and the Counterparty Risk Management Policy Group II (2005), is to encourage through moral suasion "best-practice" techniques for risk management and measurement, both within institutions and in terms of market infrastructure.
The Counterparty Risk Management Policy Group will release a report of its recommendations to strengthen practices related to the management of market, counterparty credit, and liquidity risk at 1:00 p.
Organized in January, following the market disruptions experienced in the late summer and early fall of 1998, the Counterparty Risk Management Policy Group is comprised of 12 major, internationally active commercial and investment banks.