US Fed heads for clash with hedge funds, other shadow banks

The US Federal Reserve and other central banks are heading for a collision with shadow lenders — the firms with a sinister nickname that are increasingly dominating global finance.

Policymakers have launched a review of what went wrong with markets in March, when a worldwide dash for cash by investors nearly crashed the financial system and forced unprecedented rescue actions by central banks. Their focus is on loosely regulated money market and hedge funds, mortgage originators and other entities. Already, some watchdogs have pointed to highly leveraged trades involving US Treasuries as one source of the turmoil. “In many cases they have reached systemic importance,” Bank for International Settlements General Manager Agustin Carstens said of the non-banks.