De-leverage

The FT provides a good overview of the way that the de-leveraging in the banking system spreads out through the rest of the financial sector.

The most leveraged funds are now borrowing no more than five times their asset base, compared with 10 times their asset base just six months ago, according to fund of hedge fund managers. The move comes as banks withdraw from risk-taking to repair tattered balance sheets, and places strains on formally lucrative hedge fund relationships.

This will reduce returns (and risk).