Weekly Industry Update: Bank Stress Tests Pass, True Lender Contest in CO, GS Marcus hits $1 Bn

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: