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Survey pinpoints risk in currency, hedge funds and commodities

Slip-ups to come: respondents to CSFI's
annual bank risk survey ranked too much
regulation as their biggest worry but also
pointed to the dangers of banks' exposure
to hedge funds

Risks of hedge funds, currencies and commodities are preying much more heavily on the minds of bankers this year than before, claims a report by CSFI, an independent City of London think-tank. The survey, Banana Skins has run for 10 years and is based on responses from 440 banking industry players in 54 countries. Hedge funds, currencies and commodities all moved up more than nine places in the rankings of banking risks compared with the 2003 results.

Respondents ranked hedge funds as the fifth-largest risk to the banking sector, with many seeing unhealthy links where banks offered prime brokerage services to hedge funds including preferential trading arrangements and credit. According to CSFI, one economist described prime brokerage as the "crack cocaine of the financial markets" adding that, "when the Fed bubble bursts, we will discover where the leverage is concentrated and which institutions have managed risks correctly".

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