Hedge Funds, Non-Bank Leverage and Macroprudential Policy in Emerging Markets: Lessons from Advanced Economies

Hedge funds and other non-bank financial intermediaries have become central players in global capital markets, yet their leverage and liquidity risks remain imperfectly captured by macroprudential frameworks that were designed primarily for banks. Episodes such as the March 2020 turmoil in US Treasury markets, the collapse of Archegos Capital and recent stress in gilt markets have highlighted how leveraged non-bank positions can generate systemic shocks that propagate across borders, including to emerging markets. This article develops a conceptual analysis of the channels through which hedge fund and non-bank leverage interacts with macroprudential policy, focusing on lessons from the United States, the European Union and the United Kingdom and their relevance for emerging market economies. Drawing on official reports and the academic literature, it examines how macroprudential tightening and regulatory fragmentation in advanced economies can encourage risk migration to non-banks and spillovers to emerging market asset prices, funding conditions and exchange rates. The article then discusses policy options for emerging markets, including the design of macroprudential toolkits, the monitoring of cross-border non-bank exposures and the coordination with advanced-economy regulators and central banks. It concludes by outlining an agenda for integrating non-bank and cross-border dimensions more systematically into macroprudential policy in emerging markets.