President Trump nominated James Clinger, former Chief Counsel of the House Financial Services committee, to chair the FDIC. Clinger previously worked as a staffer for Jeb Hensarling (R-TX) who authored the Financial Choice Act. Clinger also helped author the Gramm-Leach-Blilely Act which overturned the Depression-era law separating consumer and investment banking. The Trump Administration has now completed its selection of bank regulators.
This week, major banks passed their Comprehensive Capital Adequacy Review (CCAR):
Source: Bloomberg, Federal Reserve, PeerIQ
The intensive CCAR exercise requires banks to stress-test their portfolios against severe economic shock scenarios. The CCAR process, along with other capital and liquidity requirements, has led major banks (see BAC, JPM, and C for instance) to exit lending to riskier credit segments post-2008. Non-bank lenders have since filled the lending gap and now dominate several consumer credit asset classes including personal loans, auto loans, and mortgage credit.
One bank that has recently entered the lending market, GS Bank, reports they have achieved a $1 Bn lending milestone and remain on track to generate $2 Bn in loans by year-end – amongst the fastest growth rates we have seen across the PeerIQ data & analytics platform.
In the wake of emerging bank competition in the prime & super-prime category, non-banks are applying a few strategies:
- Focus on underserved credit segments where traditional banks outside of a few specialists will not compete (e.g., Fair Square Financial, Loan Depot, various non-QM lenders)
- Compete on brand and service, rather than rate, by offering a better customer experience and integrated product mix to a targeted customer segment. (e.g., SoFi)
- Lending-as-a-Service models that enable banks and credit unions to compete with licensed technology (e.g., Upstart, Avant, LendKey)
On the regulatory front, several trade groups have registered their opposition to a lawsuit from Colorado State AG that challenges pre-emption under the partner funding bank model. Trade groups in opposition include: The American Bankers Association, Clearing House Association, and Marketplace Lending Association.
On the securitization front, three deals from non-bank lenders priced this week including Springleaf ($650 MM), Lendmark ($350 MM), and Marlette ($323 MM). The Marlette transaction is the fourth securitization collateralized by unsecured consumer loans originated by Cross River Bank under the Marlette Best Egg Platform.
As Q2 draws to a close, stay tuned for PeerIQ’s upcoming securitization tracker. We will analyze record issuance volumes, emerging ABS trends, and increased ratings agency acceptance.
PeerIQ in the News:
- SoFi Bank, Upstart and Lending Club’s Inaugural Sponsored Deals (SmallBusinessLending.io, 6/22/17)
- BlackRock Summons Issuers for ETF Plan (AB Alert, 6/23/17)
- ADA-Endorsed Student Loan Program Rebrands to Laurel Road (ADA.org, 6/15/17) Darien Rowayton Bank announced that its online lending division inclusive of its student loan refinancing program is now officially called Laurel Road.
- Banks Told to Keep Skin in Game. They Securitized That Too (Bloomberg, 6/19/17) While Dodd-Frank required banks to keep some skin in the game, creative financial engineering has enabled that to be sold off to investors as well.
- Scott Sanborn Discusses the Future: On Demand Credit (LendingClub, 6/21/17) Scott Sanborn discusses the future of credit and online lending on the 10 year anniversary of the company’s beginning.
- DBRS Takes Rating Actions on SoFi Consumer Loan Programs (DBRS, 6/20/17) Of the seven outstanding publicly rated classes reviewed, six were confirmed and one was upgraded.
- US Lenders Rally to Oppose SoFi Banking Move (FT, 6/20/17) Lobby argues that SoFi is using a loophole with application.
- Trump’s Banking Deregulation Team Takes Shape With FDIC Pick (BusinessWire, 6/19/17) White House selects former chief counsel of the House Financial Services Committee, James Clinger as GOP congressional aide.
- LendingClub Closes $279.4 Million Self Sponsored Securitization (PR Newswire, 6/22/17 ) LendingClub announced it is now a programmatic issuer.
- Trade Groups Rally for Originations (AB Alert, 6/23/17) Several trade groups have registered their opposition to a court case that challenges the practices of marketplace lenders.
- BlackRock Summons Issuers for ETF Plan (AB Alert, 6/23/17) BlackRock is imploring asset-backed bond issuers to boost their deal volumes.
- SoFi’s Next Consumer Loan ABS Backed by Even Safer Credits (Asset Securitization Report, 6/22/17) SoFi is elevating its borrower pool to even greater affluence in a new $499.5 million personal loan securitization, SoFi Consumer Loan Program 2017-4.
- Goldman Sachs’ New Online Lending Business has Already Hit a $1 Billion Milestone (Business Insider, 6/19/17) Goldman Sachs launched Marcus, an online lending business for customers seeking loans of $30,000 or less, in October 2016.
- Online Lender Calls it Quits (AB Alert, 6/23/17 ) Online personal lender Pave stopped writing new accounts on June 16th. Further industry consolidation is expected amongst small non-bank lenders.
- Income Verifications Catch the Eye of Regulators (AB Alert, 6/23/17 ) An SEC investigation of online personal-loan originators is taking a closer examination of possible misrepresentations of borrowers incomes.
- A New Risk for Goldman, Morgan Stanley in Stress Tests (WSJ, 6/22/17) Goldman Sachs and Morgan Stanley scored low on a metric introduced for the first time this year, the supplementary leverage ratio, meant to measure banks’ total leverage.
- Amazon CEO Jeff Bezos May be Single-Handedly Killing Inflation (CNBC, 6/19/17) The Amazon-Whole Foods deal could push down grocery prices and hamper the Fed’s hopes for higher inflation.