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Martin Gruenberg

Unrecognized Lessons of the Archegos Collapse

Transparency isn’t the only issue. Bank leverage and the Volcker rule also need addressing.

Transparency alone isn’t enough.

Transparency alone isn’t enough.

Photographer: Simon Dawson/Bloomberg

The recent collapse of Archegos Capital Management revealed underappreciated and deeply embedded risks in the U.S. and global banking systems that need to be addressed more broadly than thus far contemplated.

Initial reactions to the failure have understandably focused on the lack of transparency at family office funds such as Archegos. Yet a strong capital requirement that meaningfully limits leverage — known as a supplementary leverage ratio — is also critical to protecting banks against the risks that such investment vehicles present. And a recent change in the Volcker rule regarding family office funds may be the least recognized risk, opening the way for banks to bail out such funds in the future.