Federal Reserve Chairman Ben Bernanke warned this week that placing more regulation on hedge funds could make financial markets less stable. He also said he believes that hedge fund trading partners manage their risks well, Reuters reports.

"Authorities' primary task is to guard against return of the weak market discipline that left major market participants overly vulnerable to market shocks," Bernanke said.

"A risk of any perspective regulatory regime is that by creating moral hazard in the marketplace, it leaves the system less, rather than more, stable."

He also noted that bank regulators are concerned with counterparty risk management. Heavy competition for hedge fund business had led banks to lower the collateral they require to lend to funds.

Bernanke said that regulators think that banks should increase stress testing and tie risk assessment to the transparency offered by hedge funds.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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