FirstFT: Global financial watchdog to probe hedge fund borrowing

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The world’s financial stability watchdog is launching a probe of the build-up of debt outside traditional banks, as it seeks to limit hedge funds’ borrowing and boost transparency.

Klaas Knot, chair of the Financial Stability Board, told the Financial Times the review was intended to address rising risks from so-called “non-banks”, which include hedge funds and private capital.

“If we want to arrive at a world where these vulnerabilities are less, we have to tackle this issue,” he said, referring to the key role played by non-banks’ debt in stoking recent crises, such as the bond market meltdown at the start of the pandemic.

Knot said the review was a priority because non-banks’ leverage “can potentially threaten financial stability”. Read the full interview.

And here’s what else I’m keeping tabs on today and over the weekend:

• Inflation: The EU’s headline rate is expected to have fallen to an almost two-year low when the flash September figure is released today. France also reports its flash consumer price index. 

• Economic data: Germany’s unemployment rate for this month is forecast to remain unchanged when published today, while the UK releases gross domestic product figures for the second quarter.

• City of London: An election will be held today for the 695th lord mayor of London, the head of the governing body for the Square Mile.

• Slovak elections: The parties of former journalist Michal Šimečka and ex-premier Robert Fico are polling neck and neck ahead of tomorrow’s vote.

• UK Conservatives: The Tory party conference starts on Sunday in Manchester, with Prime Minister Rishi Sunak expected to deflect criticism over the HS2 high-speed rail project and instead focus on his “plan for motorists”. For more UK politics, sign up for our Inside Politics newsletter.

How well did you keep up with the news this week? Take our quiz.

Five more top stories

1. Exclusive: The UK’s drive to strip Huawei from 5G networks has led to outages for Sky customers, even after the government extended a deadline to remove the Chinese group’s equipment over national security fears by a year. Here’s more on the first sign of disruption, long warned about by industry executives.

2. Deloitte’s British and Swiss operations have warned of continuing “challenging” conditions in the UK this year, despite being the only Big Four firm where partners took home an average of more than £1mn in its most recent UK results, and for the third year running. Here are more details on the firm’s performance.

• More Big Four: EY is canvassing senior partners on a shortlist of six candidates for global chief executive, following the resignation of Carmine Di Sibio in the wake of the collapse of his plan to break up the accounting firm.

3. Exclusive: Singapore’s GIC sold its stake in a Vista Equity Partners fund after the buyout firm’s founder was embroiled in a tax scandal, according to people familiar with the matter. The sovereign wealth fund, one of the world’s most influential investors, made a loss on its investment after disposing of its roughly $300mn holding at a discount. Read the full story.

4. Linda Yaccarino is planning to meet the seven banks that helped bankroll Elon Musk’s takeover of X, formerly known as Twitter, next Thursday, said people briefed on the matter. The company’s chief executive will lay out her plans to revive the struggling social media company. Here’s more on the high-stakes meeting.

5. European government bond prices dropped sharply yesterday as investors took fright at Italy’s larger than expected budget deficit and mounting concerns that central banks will keep interest rates high for an extended period. Italian 10-year government bond yields rose to their highest level in a decade, with the sell-off spreading to UK markets.

News in-depth

The travel industry has reaped the rewards of a frantic summer season, with airlines reporting record profits and hotels on both sides of the Atlantic having returned to near pre-pandemic occupancy. But it is now facing an uncertain winter and questions over whether the insatiable demand for holidays can withstand persistently high inflation and economic stagnation, or is a post-pandemic bubble waiting to burst.

We’re also reading . . . 

• Soviet nostalgia: South Africans’ support for Russia is rooted in misplaced nostalgia, but condemning Moscow need not mean unthinking adherence to the west, writes David Pilling.

• Lebanon’s wealthy: High-end hospitality is enjoying a resurgence, buoyed by those who were insulated — or even profited — from the country’s economic crisis.

• Nuclear waste: People in the English coastal county of Lincolnshire are divided over plans to locate an underground radioactive material disposal facility there.

Chart of the day

Broadly speaking, US households have chosen to spend their piles of extra money accumulated during the pandemic. But Europeans largely held back, and it looks decreasingly likely that they will mimic American behaviour, writes Soumaya Keynes.

Take a break from the news 

Autocracy is something today’s democracies thought they had left behind, but two books — one focused on antiquity, the other on modern history — shed light on how it is enabled. Read the latest FT Books Essay by Martin Wolf.

Additional contributions from Benjamin Wilhelm and Gordon Smith