The Federal Reserve and the Bank of England have launched a wide‑ranging review of risks at global credit institutions. The trigger was the huge losses of trading firm Jane Street, which lost $15 billion in July after the collapse of the hedge fund Situational Awareness, which had been making aggressive AI‑related bets.
According to the Financial Times, regulators have requested detailed information from banks about their dealings with major market makers, including Jane Street itself and Citadel Securities. Supervisors are probing risk appetite, the functioning of control systems, and intraday position dynamics. By early August, Jane Street had reported a record $40 billion of net trading revenue, but July’s drawdown showed the firm had been taking on risks far outside those typical for a classic market maker.
After the 2008 financial crisis, traditional banks scaled back proprietary trading and ceded that niche to specialist firms. Today, they mainly act as prime brokers, providing leverage, financing trades, and clearing derivatives. That means that in case of an aggressive client default, the bank ultimately foots the bill. If the Federal Reserve and the Bank of England conclude that lenders are underestimating this risk, they may be required to hold more high‑quality liquid assets on their balance sheets. The UK regulator has already put London brokers that heavily financed trades in Asian tech stocks at the peak of the AI boom under scrutiny.