Banks have dramatically cut back the amount of money they are willing to lend to hedge funds, forcing some funds to cut leverage by up to half.

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.