UPDATE 1-Fed: banks must improve hedge fund risk management

(Reuters) - Warsh, in prepared testimony before the U.S. House of
Representatives Financial Services Committee, said the Fed
shares the view that the most effective mechanism for limiting
systemic risks is strengthening market discipline among large,
global, commercial and investment banks.




"The recent growth of hedge funds presents some formidable
challenges to the achievement of public-policy objectives,
including significant risk-management challenges to market
participants," Warsh said. "If market participants prove
unwilling or unable to meet these challenges, losses in the
hedge fund sector could pose significant risks to financial
stability."


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