U.S. Sen. Sherrod Brown (D-OH) is seeking answers from large bank executives about the margin call and market activity connected to Archegos Capital Management.
Brown, the chair of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, wrote a letter to the heads of four major banks, Credit Suisse Securities, Nomura Holding America, Goldman Sachs, and Morgan Stanley, expressing concern about news reports that Archegos entered into risky derivatives transactions facilitated by major investment banks. It resulted in the panicked selling of stocks worth tens of billions of dollars and banks losing nearly $10 billion collectively, said Brown.
“Similar failures in the past, including Long-Term Capital Management and Amaranth Advisors, demonstrate the hazards to market stability and investor confidence when excessive leverage is combined with careless risk-taking,” Brown wrote.
Brown said the losses raise several questions regarding the banks’ relationships with Archegos and the treatment of so-called family offices. He sought answers to several questions, including their know your customer review and client onboarding processes for family offices, including any consideration given to whether the family office is subject to regulatory registration or reporting. He also asked the banks to describe the services offered to family offices through their prime brokerage or similar divisions; how family offices are evaluated to determine eligibility for services or products, including the extension of credit; if some services or products are not offered to family offices that are not subject to regulatory registration or reporting; and how collateral, including initial margin and variation margin, is maintained for transactions with those clients.
Brown requested answers to these and other questions by April 22.