Could online lending become the next systemic risk?
By Lalita Clozel
When banks resisted expanding credit in the years following the financial crisis and passage of the Dodd-Frank Act, online marketplace lending seized on what seemed like a niche opportunity: targeting the credit markets deserted by banks. But with issuance of marketplace securitizations now exploding — rising 300% cumulatively in the past two years — the idea of online lending as a niche is quickly deteriorating. …“We’re fundamentally destroying financial intermediation, and we’re only rebuilding parts of it back up again,” said
Karen Shaw Petrou, a managing partner at Federal Financial Analytics. …In other words, will banks no longer be the middleman for companies looking to borrow? “When you have disintermediation it means that your financial system ceases to rely on regulated financial institutions with” deposit insurance and access to the Federal Reserve’s discount window, said Petrou. “That’s fine in good times.” said Petrou.