4  BIS Review 42/2008  A third source of market uncertainty relates to the degree of de-leveraging of hedge funds, proprietary desks, and other highly leveraged institutions. With some prime brokers facing capital constraints and with the volatility of asset prices having risen, certain institutions – including hedge funds – are seeing their lines of credit cut and their margin requirements raised.
The present value of what the bank can hope to recover is a pittance. This skews bargaining power towards the borrower who can command the finest legal brains to work for him in repeated appeals, or the borrower who has the influence to obtain stays from local courts – typically the large borrower.