Large Bank Examination Workshop February 2026

Stay in Touch with GFMI

• Visit us at www.GFMI.com • Subscribe to eNews and learn more at www.GFMI.com/insights • Call us at +1 516 935 0923 • Contact us at consult@gfmi.com • Connect with us on

137

LTCM • In 1998, the hedge fund Long-Term Capital Management (LTCM) collapsed after suffering losses of $4.4 billion. • The core strategy followed by LTCM was ‘relative value’ or ‘convergence’ arbitrage trades designed to profit from small differences in price among closely related securities (e.g. on the-run vs. off-the-run Treasuries, swap spreads, etc.). • Because each of these trades generates very small profits, LTCM used high leverage (25 times or more) to create attractive returns. They also held large positions in derivative securities, many of them intended to be offsetting relative value positions.

138

69

© Global Financial Markets Institute Inc.