Are P2P lenders ready for the forthcoming economic downturn?

Interesting - and rather frightening - article in today's Telegraph which I've posted below.

The reference to alternative lenders to banks and the world of shadow banking reminds me of P2P platforms.

The article poses a critical question: "Do these alternative investors have the appropriate risk management skills and controls in place to cope with the losses if companies and consumers start defaulting en masse amid rising borrowing costs and a strengthening dollar?"

What do you think?

"Brace yourself for nasty surprises from the financial system


A genuine crisis tends to come out of the clear blue sky, only obvious in hindsight

... it creates opportunities for non-bank financial institutions to undercut lenders and steal their business and clients. Welcome to the world of shadow banking.


By definition, since this activity is not being undertaken by systemically-important banks, it is not so tightly regulated or closely monitored. The worry, as expressed by Gordon Brown, is that pockets of potentially risky activity may have built up that nobody really knows about or don’t properly understand.

...

Do these alternative investors have the appropriate risk management skills and controls in place to cope with the losses if companies and consumers start defaulting en masse amid rising borrowing costs and a strengthening dollar? Here’s hoping.


And, if not, can we be sure no individual firm is so big or interlinked with others that it sets off a chain reaction? Fingers crossed."


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