Hedge funds, insurers and other companies that do business with Wall Street megabanks are poised to pay a price for regulators’ efforts to make sure any future collapse of a giant lender doesn’t tank the entire financial system.
The Federal Reserve proposed that so-called stays be included in contracts for derivatives and other financial instruments to prevent counterparties from immediately pulling collateral from a failed bank. The plan released Tuesday is meant to give authorities ample time to unwind a firm, hopefully heading off the frantic contagion that spread through markets in 2008 when Lehman Brothers Holdings Inc. toppled and its trading partners demanded instant payment on terminated contracts.
