My main message is that recent events support rather than oppose my opinion – namely that further regulation is not necessary as long as the major banks manage their exposures to the hedge funds correctly. I shall shortly discuss the role the hedge funds have played – and not played, during last autumn’s unrest in the financial markets. However, let me first say a few words as to why hedge funds as a group are important to financial stability. Hedge funds spread risk and improve pricing Hedge funds are, as we know, a broad concept and one that covers managers with a number of different working methods and strategies. However, a common denominator for most hedge funds is that they have as a goal an absolute return rather than a relative return and have far more liberal investment rules than other funds. Also they often have highly leveraged portfolios with the aim of increasing the return. For those who reflect on the way in which financial stability develops, and all central banks do so, it is, of course, of particular interest to see what advantages and risks hedge funds as a group can convey – once again being aware that this is an extremely heterogeneous group. In my opinion, hedge funds fulfil several useful functions in the financial markets. They contribute to spreading market risk and credit risk to more agents. Further, since they can act swiftly and in a flexible manner, they can often help improve the pricing for different products.
The significant CHF appreciation in early January 2015 has entailed measures tailored to the particular features of each country. Specifically, Polish authorities recommended banks to come up with individual solutions to cut down on debtors’ debt service. Croatia introduced a fixed exchange rate of the kuna against the Swiss franc for a one-year period. The Hungarian authorities took over much of the effort of managing the consequences of the developments in the CHF/HUF rate; it should be mentioned, though, that CHF-denominated loans accounted for approximately 50% of local government borrowings and would have had a significant impact on the budget assuming inaction on the part of the authorities. VI. Pseudo-remedies vs. realistic and balanced solutions  There may be various ways of action to solve the issue of CHF-denominated loans, but any negotiated solution should be based on the following principles: •  target those individuals in real need of support;  •  reasonable burden-sharing;  •  not generate moral hazard, i.e. not lead to unreasonable expectations in the future (related to not paying the debt service) and not discriminate debtors in other currencies (RON, EUR, USD);  •  not impair financial and banking system stability. Financial system stability is essential for: (i) ensuring financial intermediation and hence the funding of economic growth, (ii) job creation, (iii) higher household income, (iv) paving the way for credit repayment, (v) preserving depositors’ confidence in the banking sector;  •  comply with the EU Treaty and Romania’s accession conditions, i.e. not restrict free capital movement.