Now that inflation is finally decelerating, regulators are increasingly turning their focus to financial stability. They’re pushing for greater oversight of the financial system — not just banks, but also how they facilitate the ballooning shadow-banking system, led by hedge funds. With a tsunami of government debt to finance in upcoming years and the era of nearly cost-free and unlimited leverage ending, anything that restricts the market’s room for maneuver may have unintended consequences.

A worrying succession of mini quakes — including the March 2020 dash-for-cash that saw the Federal Reserve intervene and last year’s UK pension fund crisis that required emergency Bank of England gilt purchases — has made market overseers nervous about systemic risks. New rules coming into force in the coming years will change how financial markets operate. The hedge fund community is a keystone of the debt markets; disrupting its ability to absorb government debt will have knock-on effects for borrowing costs.