The European Central Bank (ECB) called yesterday for an international register of hedge fund activity to fend off the possibility of a global financial crisis emanating from the rapidly expanding industry.

The bank’s backing for a central register — which could be updated daily or perhaps more often — came as Germany, which takes presidency of the Group of Eight industrialised nations next year, said that it had received “very encouraging” signals from London and Washington in support of its initiative to increase the transparency of hedge funds.

International regulators have agreed that direct control of the $1,500 billion (£766 billion) hedge fund industry would be difficult to implement and that the highly leveraged funds’ involvement with all “significant” regulated financial institutions, such as banks, should be monitored.

No consensus on the way forward has been reached among regulators and so the ECB’s backing for an international register is expected to reignite debate.

Lucas Papademos, the ECB’s vice-president, said that a central register of hedge funds would be “a topic for discussion” at next year’s G8 meetings in Germany.

However, the debate is likely to be kicked off this week when Thomas Mirow, the German Deputy Finance Minister, who has championed the idea of a central register of hedge funds, travels to Washington to discuss Berlin’s plans with the US Treasury.

The ECB’s financial stability review published yesterday said that the collective actions of hedge funds in times of stress “could potentially undermine the smooth functioning of affected financial markets and cause losses for creditors, foremost banks”.

However, it was noted that the financial distress of Amaranth Advisors, a hedge fund that lost its investors about $7 billion in September after being wrongfooted by natural gas prices, had little impact on markets, mainly because a few other large investors took over its loss-making positions.

Amaranth’s losses were much larger than those of Long-Term Capital Management, whose near-failure in 1998 threw global financial markets into turmoil, the ECB noted, but the limited reaction to Amaranth may have been a reflection of “rather benign” market conditions, it said.

The ECB said that the role of hedge funds in the rapid growth of credit risk transfer markets had created unease, particularly as such institutions “tend to be rather opaque about their activities”. About 20 hedge funds are expected to collapse each year.