Greenwood2
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Post by Greenwood2 on Feb 20, 2016 7:55:59 GMT
Well, if we needed an example of the reputational risk of dipping into funds that are supposed to be arms-length and ring-fenced... ...there is a concrete example right there. If I was a potential new lender, did a Google search of RateSetter, and saw headlines like that in the FT, I would run a mile. Extremely worrying, what else might we not be aware of?
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adrianc
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Post by adrianc on Feb 20, 2016 9:33:37 GMT
I'm utterly relaxed about the PF being used to provide short-term pressure relief like this.
0.6% of the PF is about a hundred grand. If the PF is called into play, and a hundred grand is sufficient to cause a problem, then there are FAR bigger problems out there...
Although, having said that, I guess the PF selling out the 0.6% is why the 5yr money has just had a massive chew through the backlog. Looks like most of the 6.5% went.
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alender
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Post by alender on Feb 20, 2016 10:46:32 GMT
Although, having said that, I guess the PF selling out the 0.6% is why the 5yr money has just had a massive chew through the backlog. Looks like most of the 6.5% went. Not sure if this is the cause as it reached 6.6% a day before this was changed was announced, it is the time in month when rates rise; there is reduced amount of money in all markets and weekly volume is up on the last 3 weeks. Anyway what is wrong with letting the market set the rate.
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Post by westonkevRS on Feb 20, 2016 18:41:32 GMT
Maybe the next lobbying campaign by lenders should focus on the RS use of lenders monthly funds to lend to longer term borrowers. The monthly money as a product has ways been used to fund longer dated loans, this is the essence of the product. It's been this way since launch. So anyone that has ever lent money into the monthly market knows their money is used to fund longer term loans. This isn't unique to RateSetter, it's obviously what every bank in the world does and a number of other P2P platforms (including soon one of the other "big 3") RateSetter doesn't do short-term loans....
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Post by p2plender on Feb 20, 2016 19:00:38 GMT
Maybe the next lobbying campaign by lenders should focus on the RS use of lenders monthly funds to lend to longer term borrowers. This practise makes the longer term interest rates artificially low by influencing market forces to the detriment of lender returns. It also could lead to a liquidity crunch for the monthly lenders if too many withdraw or do not reinvest their money.
Anyone from the newspapers here? Sorry but I disagree. The monthly market is a very useful tool. It's very liquid and offers very acceptable rates - well better than other products I've seen. I don't give a monkey's nuts what RS choose to do with my cash so long as it's returned with interest - 4% some days btw. In fact well done RS for using initiative ;-))
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Post by westonkevRS on Feb 21, 2016 8:06:48 GMT
RateSetter doesn't do short-term loans.... Oh hang on, I know.... 30 days loans, hugely inflated rates, lend to any old dogsbody..... What could go wrong?
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Post by newlender on Feb 21, 2016 8:15:44 GMT
Today's Sunday Telegraph Money section obviously hasn't heard about the change of heart at the top - there's a big article about P2P and a section on RS. Under the heading ''Fund to cover bad debts' it states '£17m, although some has been lent to customers'. (Mind you, it does also say that Zopa repayments come in 'on a monthly basis', which is also wrong.)
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Post by propman on Feb 22, 2016 8:45:15 GMT
Maybe the next lobbying campaign by lenders should focus on the RS use of lenders monthly funds to lend to longer term borrowers. The monthly money as a product has ways been used to fund longer dated loans, this is the essence of the product. It's been this way since launch. So anyone that has ever lent money into the monthly market knows their money is used to fund longer term loans. This isn't unique to RateSetter, it's obviously what every bank in the world does and a number of other P2P platforms (including soon one of the other "big 3") RateSetter doesn't do short-term loans.... I understand that the monthly and yearly markets are used to make up 6,12,18 & 24 month loans. What came as a shock to me was the revelation that these have also been used to fund 3 & longer year loans.
In the event of a liquidity event, which I believe is quite likely at some point - due to the huge amount refinanced monthly, so a significant drop in funds (such as from any significant P2P company going bust in UK with full publicity) is likely to lead to a liquidity event for a few days at least. This could cause a further flight of money from the market especially as fee free withdrawals may soak up extra funds added. The issue here is that funds might be unavailable for much longer than expected and there are separate markets to fund 3+ year loans.
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alender
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Post by alender on Feb 22, 2016 9:51:42 GMT
In the event of a liquidity event, which I believe is quite likely at some point - due to the huge amount refinanced monthly, so a significant drop in funds (such as from any significant P2P company going bust in UK with full publicity) is likely to lead to a liquidity event for a few days at least. This could cause a further flight of money from the market especially as fee free withdrawals may soak up extra funds added. The issue here is that funds might be unavailable for much longer than expected and there are separate markets to fund 3+ year loans.
As I have said on other threads I always believed that this type of behaviour is dangerous and a liquidity crunch can be trigged by a real or perceived event with RS, other P2P or something outside of P2P. It is not as though this has not happened before, the most recent example in 2008, remember the queues for Northern Rock. The first sign will be people unable to cancel one month contracts, which is more likely now as the fees have been removed, the next is a lock in. Once this occurs I believe most people will withdraw unplaced funds no matter how high the interest rate and very few (if any) new funds placed on the market. I do not believe RS can survive for very long like this as there can be no new loans, money will dry up for salary expenses etc. the next is the resolution event. The great pity about this is that RS may well not have any real problems but it won’t matter once confidence is lost. We can only hope that in these desperate times the rules of the PF are not changed so it can be used as liquidity to put off the first lock in. If loans fall between the times of RS leading teams then a shorter contract can be formed, i.e. 4½ years from the 5 year market as it does now, I have a had a lot of my lending placed for less time that the market it is on.
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Post by propman on Feb 22, 2016 10:35:14 GMT
As I have said on other threads I always believed that this type of behaviour is dangerous and a liquidity crunch can be trigged by a real or perceived event with RS, other P2P or something outside of P2P. It is not as though this has not happened before, the most recent example in 2008, remember the queues for Northern Rock. The first sign will be people unable to cancel one month contracts, which is more likely now as the fees have been removed, the next is a lock in. Once this occurs I believe most people will withdraw unplaced funds no matter how high the interest rate and very few (if any) new funds placed on the market. I do not believe RS can survive for very long like this as there can be no new loans, money will dry up for salary expenses etc. the next is the resolution event. The great pity about this is that RS may well not have any real problems but it won’t matter once confidence is lost. We can only hope that in these desperate times the rules of the PF are not changed so it can be used as liquidity to put off the first lock in. If loans fall between the times of RS leading teams then a shorter contract can be formed, i.e. 4½ years from the 5 year market as it does now, I have a had a lot of my lending placed for less time that the market it is on. I agree with you on liquidity, but the terms are no explicit that lack of liquidity will be dealt with by lock-in of monthly and annual money until the earlier of borrower repayment, default or liquidity becoming available. As a result a resolution event would only occur on the PF being insufficient not mere liquidity. Yes there would be a huge reduction in lender supply, but RS could continue (at least in the 3 & 5 year markets) and rebuild trust as Z did following the 2008 default sunami, so I don't think this would be the end of RS, just difficult times, possibly requiring a downsizing if their financial backers were unwilling to cover the costs of the reduced business flow.
I am not sure what your final point is. Loans can be repaid at any time and I have had 5 year loans repaid in their first month. While annoying for those who would rather have interest than liquidity, this is a cost of the P2P offer.
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investibod
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Post by investibod on Feb 22, 2016 11:03:37 GMT
I am not sure what your final point is. Loans can be repaid at any time and I have had 5 year loans repaid in their first month. While annoying for those who would rather have interest than liquidity, this is a cost of the P2P offer.
I think the point being made is that loans for odd lengths could be funded from the longer term markets rather than the monthly market. For instance, 18 month and 2 year loans could be funded from the 3 year market. Presently if there was a drying up of incoming investments, there could be a liquidity problem when these loans needed to be refinanced each month - RS have lent the money for 18 months but they have only taken the investment to fund this for one month. Each month they will need to take in new money on the monthly market to roll it over. If there is no monthly money coming in, this could casue a difficulty. Funding these loans from the longer market would mean that either: - The rates to borrowers would need to be higher to reflect the huger rates on the longer markets
- RS margins would be cut
- The rates on the longer markets would need to go down
In fact, it might well be a combination of all of these.
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Post by propman on Feb 22, 2016 11:33:45 GMT
I agree. The trouble is the fixed costs on these loans (including significant small loans - notably to finance mobiles at Gifgaf) is significant and so increasing rates may substantially reduce the demand.
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alender
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Post by alender on Feb 22, 2016 11:56:38 GMT
As a result a resolution event would only occur on the PF being insufficient not mere liquidity. Yes there would be a huge reduction in lender supply, but RS could continue (at least in the 3 & 5 year markets) and rebuild trust as Z did following the 2008 default sunami, so I don't think this would be the end of RS, just difficult times, possibly requiring a downsizing if their financial backers were unwilling to cover the costs of the reduced business flow.
I am not sure what your final point is. Loans can be repaid at any time and I have had 5 year loans repaid in their first month. While annoying for those who would rather have interest than liquidity, this is a cost of the P2P offer.
My point is that the loans may well be good but with a lock in no new loans can be made reducing RS fees used to pay wages etc. If it last long enough RS become insolvent even if the loan book is good then I assumed there would be a resolution event.The other point as already been answered in that there is no need to use short term money for longer term loans as RS can create a loan shorter than the market it is on.
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Post by westonkevRS on Feb 22, 2016 13:36:08 GMT
For instance, 18 month and 2 year loans could be funded from the 3 year market. This would be commercially very difficult to achieve whilst still attracting prime customers. The lender return on longer dated lending is quite rightly more expensive, therefore we would only be able to attract higher risk borrowers that couldn't get loans elsewhere. RateSetter has no appetite to become a sub-prime higher risk lender. Kevin.
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Post by propman on Feb 23, 2016 12:31:09 GMT
As a result a resolution event would only occur on the PF being insufficient not mere liquidity. Yes there would be a huge reduction in lender supply, but RS could continue (at least in the 3 & 5 year markets) and rebuild trust as Z did following the 2008 default sunami, so I don't think this would be the end of RS, just difficult times, possibly requiring a downsizing if their financial backers were unwilling to cover the costs of the reduced business flow.
I am not sure what your final point is. Loans can be repaid at any time and I have had 5 year loans repaid in their first month. While annoying for those who would rather have interest than liquidity, this is a cost of the P2P offer.
My point is that the loans may well be good but with a lock in no new loans can be made reducing RS fees used to pay wages etc. If it last long enough RS become insolvent even if the loan book is good then I assumed there would be a resolution event.The other point as already been answered in that there is no need to use short term money for longer term loans as RS can create a loan shorter than the market it is on. Strictly I don't think a resolution event would be required. However, the liquidator of RMM would need to decide how to deal with the ongoing loanbook. IIRC P2PFA members (possibly FSA regulated ones as well), have to have a plan in place to collect the debts for the lenders and this should be implemented. Personally I think a reduced RMM Ltd could continue to operate in longer markets although it would (for a while at least) be at a reduced volume and possibly at a higher risk margin. In the meantime they would need to lay off many of the staff required for the current business level.
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