Hedge funds

The transaction will free up as much as $500 million for loans in Latin America and the Caribbean to help alleviate poverty and protect the environment.

Federal Reserve Vice Chair for Supervision Michael Barr said in a speech Tuesday that banks might need to establish margin to counteract counterparty risks presented by private funds.

The key to the trade is that the instruments, worth about $20 billion in all, are pegged to the now-defunct London interbank offered rate, or Libor.

The U.K. manager's assets have declined from peak of nearly $20 billion before a spate of 2020 losses.

The Securities and Exchange Commission and the Federal Reserve have questioned prime brokers about the basis trade as well.

The loans coming across their desks include car debt and personal loans, from consumer lenders including LendingPoint, Best Egg and Upstart Holdings Inc., as well as regional banks.

Federal officials have questioned prime brokers about leveraged trading in government bonds by their fast-money clients.

The Financial Stability Oversight Council has struggled to find its footing since its creation in Dodd-Frank. The Treasury secretary has signaled a more aggressive role for the panel, including reviving its authority to target nonbank behemoths.

Yellen announced she has revived a hedge fund working group so agencies can “share data, identify risks and work to strengthen our financial system."

Treasury Secretary Janet Yellen said she prefers to have the Financial Stability Oversight Council flag hazardous activities by nonbanks rather than subject specific firms to heightened supervision.