jimbo
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Post by jimbo on Oct 29, 2014 22:28:57 GMT
There certainty could be a run on both FC and TC in the event of large scale defaults, but loan sellers would soon find that secondary market liquidity on both platforms is not exactly deep. Plenty of people would end up effectively locked in. I suspect this wouldn't be a particularly negative development for TC due to most users on that platform having some understanding of what they're doing. However, I suspect it would come as a nasty shock to many of FCs autobidders - especially those who've been funnelled into the property loans. If the situation were severe enough, I'd expect some FC-negative headlines to be generated as a result. The next serious recession will certainly make for an interesting acid test...
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pikestaff
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Post by pikestaff on Oct 29, 2014 23:18:41 GMT
But that's not the same thing as a run on the banks. A run on the banks is when depositors demand money they are entitled to, and the banks can't pay - usually because they haven't got enough liquidity. This is the downside of the banks borrowing short term (from depositors) to lend long term. Lenders on FC or TC have no entitlement to be repaid other than by the borrowers.
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Post by loanstar on Oct 29, 2014 23:44:00 GMT
Yes, any depositor at a bank expects to be able to withdraw funds on demand, unless it is an account with a notice period. P2P platforms make
it clear that loan parts may be sold on the internal secondary market. If a platform stopped operating then the first service to stop would be
the secondary market.
What other services would stop? I assume borrowers direct debits would still send monthly payments. Would the system still share this money out?
The other big difference with bank is that bank can call in a loan, ask for early repayment. Can or would a P2P do that?
I see that FC broke new grown today by pulling a property loan that was not going to fill.
It seems to me that the FCA has a great deal to think about before it starts to write the rule book.
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jimbo
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Post by jimbo on Oct 29, 2014 23:44:47 GMT
I agree that it's not the same thing as a bank run, but judging by some of the comments and complaints I've read over on the official FC Forum, it appears to have come as a bit of a surprise to some people using autobid that small business lending is actually very risky. I wonder how many more are yet to have this epithany and are currently using FC as a defacto savings account with some implicit assumptions attached about being able to quickly access their money. These are the people who may panic quickly in the event of larger scale losses on the platform, and if enough of them do it en-mass, some analogies to a bank run could be drawn. It doesn't matter that they wouldn't have an automatic entitlement to withdraw their money. There would still be fear and concern, along with the associated knock-on effects in terms of bad press.
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shimself
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Post by shimself on Oct 30, 2014 21:38:22 GMT
.... it helps replace bank lending that is now uneconomic for banks due to reg cap changes... sorry reg cap? and otherwise, what a sorry state of affairs where the regulator imposes such a burden that the business becomes unsustainable.
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Post by planetx on Oct 31, 2014 7:55:55 GMT
.... it helps replace bank lending that is now uneconomic for banks due to reg cap changes... sorry reg cap? and otherwise, what a sorry state of affairs where the regulator imposes such a burden that the business becomes unsustainable. Regulatory capital - there's an interesting example over on the AC board: p2pindependentforum.com/thread/6/bankers-finance-explainedUnfortunately we've established the hard way that a) left to their own devices, banks don't manage their risks well enough to guarantee their solvency, and b) major banks are so important to the economy that they can't be allowed to fail. Versus the alternatives of having them all in the public sector or accepting that we have to bail them out with public money every so often, capital regulations don't look such a bad idea. I think complete separation of deposit taking institutions and investment banking would have reduced the need for them though, and it's a pity governments haven't been stronger on that.
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adrianc
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Post by adrianc on Oct 31, 2014 8:28:01 GMT
and otherwise, what a sorry state of affairs where the regulator imposes such a burden that the business becomes unsustainable. That depends on how you view the concept of regulation. If you see it as a good thing, then surely if a business can't conform to the standards that society - via the regulator - expects, in a financially sustainable way, the business model was never acceptable in the first place. We can debate the fine detail of the individual regulations separately. The only other alternative is to see it as a bad thing, in which case you have to accept and expect the Madoffs and boiler-rooms of this world.
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Post by davee39 on Oct 31, 2014 10:49:34 GMT
My definitive answer - failures will come from platforms which did not set out to lend on property but have dived in on a 'me too' basis to increase platform income. As I see it they have found their original business model unsustainable and are all fast approaching the same point (short term bridging loans at very high rates). BANG!!
Here I exclude Assetz, Wellesley and FC.
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mikes1531
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Post by mikes1531 on Oct 31, 2014 12:32:59 GMT
My definitive answer - failures will come from platforms which did not set out to lend on property but have dived in on a 'me too' basis to increase platform income. As I see it they have found their original business model unsustainable and are all fast approaching the same point (short term bridging loans at very high rates). BANG!! Not a very pretty picture! How about this one instead? Banks used to do a huge amount of bridging and development loans, and were making a lot of money at it. Other areas of banking went pear-shaped and caused the banking crisis. Banks cut back their bridging and development lending significantly in attempting to recover from the crisis. This meant that there was a lot of unfilled demand for those loans and significant profit potential for others. P2P lenders that started up intending to do something else -- such as boat loans and pawnbroking -- have concluded that they can expand into bridging and development loans because it's an undersupplied market at the moment. So they do, and they're successful. Is that being too wildly optimistic?
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bugs4me
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Post by bugs4me on Oct 31, 2014 12:40:03 GMT
My definitive answer - failures will come from platforms which did not set out to lend on property but have dived in on a 'me too' basis to increase platform income. As I see it they have found their original business model unsustainable and are all fast approaching the same point (short term bridging loans at very high rates). BANG!! Not a very pretty picture! How about this one instead? Banks used to do a huge amount of bridging and development loans, and were making a lot of money at it. Other areas of banking went pear-shaped and caused the banking crisis. Banks cut back their bridging and development lending significantly in attempting to recover from the crisis. This meant that there was a lot of unfilled demand for those loans and significant profit potential for others. P2P lenders that started up intending to do something else -- such as boat loans and pawnbroking -- have concluded that they can expand into bridging and development loans because it's an undersupplied market at the moment. So they do, and they're successful. Is that being too wildly optimistic? The banks got very badly burnt in the commercial property sector albeit after they had paid out huge staff bonuses based on future profits that often did not materialise. Whether P2P lenders can be successful in this area I think it is too early to call. It only takes one mild downturn in the market and those 70% LTV's will soon become 100%+ LTV's IMO. All crystal ball glazing stuff though.
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adrianc
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Post by adrianc on Oct 31, 2014 12:51:52 GMT
It only takes one mild downturn in the market and those 70% LTV's will soon become 100%+ LTV's IMO. I think our definitions of "mild downturn" may differ.
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jonno
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nil satis nisi optimum
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Post by jonno on Oct 31, 2014 13:34:17 GMT
It only takes one mild downturn in the market and those 70% LTV's will soon become 100%+ LTV's IMO. I think our definitions of "mild downturn" may differ. I agree.Clearly one man's "mild downturn" is another man's "total tanking"!
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Post by oldnick on Oct 31, 2014 15:44:47 GMT
I think our definitions of "mild downturn" may differ. I agree.Clearly one man's "mild downturn" is another man's "total tanking"! Might the definition hinge on whether it's your own cash or just 'other peoples money'?
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Post by loanstar on Oct 31, 2014 17:59:34 GMT
Bugs4me brought up the subject of staff bonuses. If anyone from a P2p platform is reading this thread I'd like your comment on that.
With FCA sniffing round what do we think they should do to help matters, assuming regulation will help. I get the feeling that
barn doors and horses are all the FCA and BoE can be.
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Post by westonkevRS on Oct 31, 2014 20:15:12 GMT
Bugs4me brought up the subject of staff bonuses. If anyone from a P2p platform is reading this thread I'd like your comment on that. With FCA sniffing round what do we think they should do to help matters, assuming regulation will help. I get the feeling that barn doors and horses are all the FCA and BoE can be. If there's one thing I miss from my days in traditional financial services, it's the bonuses.... Every April now I feel a little poorer (but richer in my heart....).
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