The Federal Reserve and Bank of England have intensified their scrutiny of major global banks' exposures to proprietary trading firms, according to a Financial Times report published on September 21, 2026. The regulatory push comes after Jane Street, one of the world's largest market makers, suffered a $15 billion loss in July -- its worst monthly performance since 2016 -- triggered by turmoil in the AI-focused Situational Awareness fund run by former OpenAI researcher Leopold Aschenbrenner.
Central banks have requested detailed information from banks about their risk appetite toward large trading firms, the intraday evolution of their exposures, and the adequacy of risk controls in place. The request, reported by the Financial Times via Reuters, extends across the global banking system and is not limited to any single jurisdiction.
Background: How the Losses Unfolded
The Situational Awareness fund, which held concentrated positions in artificial intelligence and semiconductor equities, was forced to liquidate a significant portion of its public equity portfolio in a fire sale to Citadel Securities during a broad sell-off in AI-related stocks. That mass liquidation contributed directly to Jane Street's estimated $15 billion loss for the month, according to Reuters reporting from August 14, 2026.
Jane Street's loss was notable not only for its scale but for its timing: the firm had enjoyed an unbroken run of profitable months stretching back nearly a decade. The Situational Awareness fund's collapse highlighted the interconnected risks between hedge fund leverage, market-making capacity, and bank counterparty exposure -- a chain of relationships that regulators have been increasingly keen to map.
SEC Subpoenas Add Enforcement Dimension
The central banks' information requests are occurring alongside a more aggressive enforcement action from the U.S. Securities and Exchange Commission. In the weeks preceding the Fed-BoE announcement, the SEC issued subpoenas to Goldman Sachs, JPMorgan Chase, Citigroup, and Bank of America, demanding details about the Situational Awareness fund's trading activity, use of leverage, margin calls, and the nature of the financing relationships these banks maintained with the fund.
The SEC investigation is examining how banks managed their exposure when market conditions deteriorated rapidly, and whether appropriate risk limits and collateral requirements were enforced. The subpoenas suggest that regulators are looking beyond the hedge fund itself to assess whether the banking system's prime brokerage and financing infrastructure contributed to or failed to contain the risks.
Why It Matters
The dual regulatory push -- prudential supervision from central banks and market conduct enforcement from the SEC -- signals a broader reassessment of how large trading firms interact with the banking system. Proprietary trading firms like Jane Street are not traditional banks, yet they can accumulate exposures that rival those of major financial institutions. When those firms suffer large losses, the ripple effects can propagate through bank balance sheets via prime brokerage, derivatives clearing, and short-term financing arrangements.
For the banking system, the key question is whether lenders had adequate visibility into the risk positions they were financing. The Fed and BoE's focus on intraday exposure evolution suggests concern that overnight or intraday risk limits may have been breached without sufficient monitoring. The SEC's emphasis on margin calls and leverage points to a separate but related concern: whether banks extended financing on terms that adequately reflected the risks involved.
What Remains Unclear
Neither the Fed, the BoE, nor the SEC have publicly commented on the scope or timeline of their respective inquiries. It is not yet known whether the investigations will result in formal enforcement actions, supervisory findings, or new regulatory guidance. The extent to which other trading firms beyond Jane Street were affected by the Situational Awareness fund's collapse also remains unclear.
Jane Street itself has not publicly disclosed the full breakdown of its July losses. The $15 billion figure, first reported by Reuters in August, was based on unnamed sources. The firm's annual performance and the status of its client relationships remain closely watched by market participants.
The regulatory actions arrive at a moment of heightened sensitivity to systemic risk in technology and AI-linked assets. As hedge funds and market makers concentrate larger positions in a narrowing set of AI-related securities, the potential for correlated losses -- and for those losses to stress bank counterparties -- has become a live concern for regulators on both sides of the Atlantic.
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