McCreevy defends decision not to regulate hedge funds[de] 

Speaking at a conference in London on 20 February 2007, McCreevy underlined that the decision not to regulate hedge funds on an EU level should be "recognised as swallows of a new European regulatory spring. We are reducing the regulatory pressure post-FSAP and intend to stay there".

His remarks follow recent criticism by politicians across the EU over large returns made by hedge funds and warnings that the way they operate may pose a threat to financial markets.

McCreevy, in an interview with the Financial Times, argues that regulators would act if necessary, but insists that "as yet, there has not been a threat to financial stability". Moreover, in view of global capital mobility, he believes that any EU legislation would be meaningless "unless we got a global agreement".

G7 finance ministers said that hedge funds "contributed significantly to the efficiency of the financial systems". But they added that activities were becoming "more complex and challenging" and "given the strong growth of the hedge-fund industry and the instruments they trade, we need to be vigilant".

German Labour and Social Affairs Minister Franz Müntefering compared hedge funds to "locusts" and called for more regulation and transparency. He said: "I think we need rules that ensure that this industry, this modern form of capitalism, respects the requirements of the social market economy."

French presidential candidate Nicolas Sarkozy called for an introduction of a European tax on speculative capital movements. He told the Financial Times: "Who can tolerate a hedge fund buying a company with debts, firing 25% of its staff and then reimbursing them by selling it in pieces? Not me."

Federal Reserve Chairman Ben Bernanke warned US authorities not to impede on financial innovation by over-regulating hedge-fund industries. Bernake said: "I would be very reluctant to get involved in heavy-handed, direct regulation of hedge funds." 

He added: "One of their key characteristics is that they are very nimble and that is good for the economy, because they help to create liquidity in markets, they help to spread risks around more broadly, and a regulatory regime that inhibited that flexibility and nimbleness would eliminate a lot of the economic benefits."