The largest US banks survived the first part of this year’s Fed “stress tests” — making acase for relaxing some of the regulations put in place post the 2008 crisis. The new bar for banks to clear this time was the supplementary leverage ratio, a measure of health of off-balance-sheet exposures which include derivatives. While all banks tested above the minimum of 3% ratio, Morgan Stanley and Goldman Sachs came closest to missing out at 3.8% and 4.1% respectively exposing new risks these banks face. While the overall resultsare an upbeat news for banks in general, the tests did highlight an issue we’ve pointed out to before: credit card debt, which has seen losses rise. Here’s more:
Securitisation continues its rise in various forms across the world. Lending Club closed its first self-sponsored securitisation deal. There’s more activity in Europe with more banks looking to securitise direct lending credit lines and the European parliament reaching an agreement for a plan to revitalise the continent’s securitisation market. And in India, tax breaks and new rules have led to a 66% jump in sales ofsecuritised debt last tax year.
Libor is set to be replaced as a reference for trillions of dollars of financial instruments with a new rate that will be based on live, actual transactions and published by the Federal Reserve Bank of New York in coordination with the Office of Financial Research, in an attempt to reduce the risk of manipulation.
SoFi recently applied for a banking charter to be able to collect FDIC-insured deposits through to make loans. Since then, a powerful lobby group for US banks is circling the wagons against SoFi urging the Federal Deposit Insurance Corporation to reject its application to launch a banking unit.
In regional news, the small business lender Archover gained membership to the Asset Based Finance Association (ABFA). The ABFA represents over 95 per cent of the UK and Irish asset-based finance market, working to set and maintain ethical standards within the industry.
And, by the way, Goldman Sachs has already loaned over a $1 billion dollars through their online consumer lending platform, Marcus. GS publicly introduced Marcus 8 months ago.
The European parliament reached an agreement with national governments for a plan to revitalise the continent’s securitisation market taking a big step towards realising the creation of a Capital Markets Union. Developments here are very good news for marketplace and alternative lenders in the Europe region who are yet to embrace the funding method to the extent their US counterparts have. Read more.
The boom in direct lending has prompted European banks, led by Credit Suisse, to syndicate their credit facilities, selling billions of euros of exposure directly to asset managers. Now, other European banks are looking to find an even bigger audience for such exposure to direct lending funds. “It’s been a clear progression from banks providing leverage, to then syndicating that debt to non-banks,” said a securitisation lawyer. “The next step in that progression is getting external ratings and selling them as public securities.” Read more.
A similar non-bank lending theme is taking a slightly different directional form in India where central bank rules dictate that banks have to lend a certain amount to small businesses, farmers and other “priority sectors” which are difficult to access and assess for credit risk. Non-bank finance companies — lending institutions that do not take deposits — sell these loans in securitised form to banks, so that they can meet the requirements. New changes in rules have re-energised sales of such securitised debt. Read more.
The mostly non-sensical approach of relying on an archaically determined measure to price trillions of dollars of loans and derivatives is finally set to change for the better as an industry body convened by the US government has chosen a new benchmark interest rate to replace the scandal-ridden Libor. Quants everywhere are rejoicing as they will get to rewire their spreadsheets. Read more.
As alternative investments become more mainstream, information about investment vehicles, underlying assets and other risk management data has become more important to investors. However, best practices around transparency requirements are lagging behind the demand found Northern Trust in a recent survey of 200 asset managers.Read more.
In the US, two of the biggest alternative lenders continued to make big moves. Lending Club closed its inaugural self-sponsored securitisation deal. The Consumer Loan Underlying Bond (CLUB) NP Credit Trust 2017-NP1 (CLUB 2017-NP1) issued $279.4 million in notes backed by consumer loan assets facilitated through the LendingClub platform. “It allows us to expand access to large-scale, long-term investors,” said Scott Sanborn, CEO of LendingClub. Read more. Meanwhile, SoFi applied for a banking charter and many people are not happy about it.
In an interview where two college buddies seem to have reconnected, Lloyd Blankfein sat down with Jim Cramer to talk about Twitter, Janet Yellen, Marcus and more. Of course, to us, the juiciest piece came when Blankfein said, “By the way, we just crossed over a billion dollars.” referring to the total amount of loans made on Marcus, Goldman Sachs’s online unsecured consumer lending platform. This is since the platform’s introduction in October last year, and Blankfein expects this number to increase another $1 billion by the end of the year. Read more.
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