The Federal Reserve and the Bank of England step up scrutiny of bank lending to trading firms after Jane Street's loss

The Federal Reserve and the Bank of England have intensified their questioning of prime brokers about the risks banks carry through their financing relationships with large trading firms, following the loss at Jane Street tied to the collapse of the hedge fund Situational Awareness. The Federal Reserve is running a parallel review of how American banks manage counterparty exposure to major trading houses.

Situational Awareness, run by the former OpenAI researcher Leopold Aschenbrenner, lost roughly 35 billion dollars in assets after margin calls from its prime brokers forced a distressed sale of its listed holdings to Citadel. The prime brokers were Bank of America, Goldman Sachs and JPMorgan, and leverage was reported at about four times capital. Jane Street lost approximately 15 billion dollars in July, and said the hedges it held gave little protection because the losses in artificial-intelligence shares accumulated over weeks rather than arriving all at once.

Valuations in the same sector keep rising. The Financial Times' Lex column argues that a two trillion dollar valuation for Anthropic is plausible and that several valuation methods suggest an even higher figure.

Both facts belong to one process. Cheap and abundant financing lets concentrated bets on a single theme scale up through bank balance sheets, and the losses surface only when the collateral is marked. Regulators are now examining the financing channels that carried the bet, the standard sequence once credit expansion meets a crowded position.