Fed and BoE probe banks' ties to trading firms after Jane Street's $15 billion loss
The US Federal Reserve and the Bank of England are asking major banks about their exposure to large trading firms following a $15 billion hit to Jane Street linked to the collapse of AI-focused fund Situational Awareness.
A sharp sell-off in AI and chip stocks compelled the AI-focused hedge fund Situational Awareness, led by former OpenAI researcher Leopold Aschenbrenner, to sell most of its public-equity portfolio to Citadel Securities in July. The forced liquidation contributed to Jane Street incurring a $15 billion loss that month. Prompted by this turmoil, the US Federal Reserve and the Bank of England have launched inquiries into global banks’ exposures to large trading firms, asking for details on risk appetite, how exposure evolved throughout the trading day, and the operation of risk controls.
The regulators aim to understand whether banks’ links to firms like Jane Street could pose systemic risks. In August, the US Securities and Exchange Commission issued subpoenas to major Wall Street banks, including Goldman Sachs, JPMorgan, Citigroup and Bank of America, to review Situational Awareness’s trading activity, leverage use, margin calls and lender communications. The central banks have not yet commented publicly on the investigations.
Why it matters
Regulators are assessing whether banks' connections to trading firms could threaten financial stability after a massive loss.
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