IS THE FINANCIAL SYSTEM SAFER IF CREDIT IS FORCED OUT OF BANKS?: After the passage of Dodd-Frank, with its higher capital standards and other restrictions, the private-credit sector enjoyed explosive growth. It is now $1.6 trillion in size and BlackRock estimates it will more double over the next five years.
While I have many issues with bank regulators, I still believe a regulated banking system is much safer for the country’s financial system and the economy overall. Thus I believe regulators should think twice as they consider further raising banks’ capital requirements. The recently released results from the annual Shared National Credit review should raise some questions. The SNC review incorporates $6.4 trillion in syndicated loans. The non-pass rate at U.S. banks was 3.8%, and was 4.2% at foreign banking organizations, both increases of 60 basis points from the prior year. However, the non-pass rate at non-banks was 27.5%, up 830 basis points over the past year. The non-banks’ share of non-pass loans is more than three times its share of SNCs.
As credit exits the banking system, risks are rising
By Thomas K. Brown,
IS THE FINANCIAL SYSTEM SAFER IF CREDIT IS FORCED OUT OF BANKS?: After the passage of Dodd-Frank, with its higher capital standards and other restrictions, the private-credit sector enjoyed explosive growth. It is now $1.6 trillion in size and BlackRock estimates it will more double over the next five years.
While I have many issues with bank regulators, I still believe a regulated banking system is much safer for the country’s financial system and the economy overall. Thus I believe regulators should think twice as they consider further raising banks’ capital requirements. The recently released results from the annual Shared National Credit review should raise some questions. The SNC review incorporates $6.4 trillion in syndicated loans. The non-pass rate at U.S. banks was 3.8%, and was 4.2% at foreign banking organizations, both increases of 60 basis points from the prior year. However, the non-pass rate at non-banks was 27.5%, up 830 basis points over the past year. The non-banks’ share of non-pass loans is more than three times its share of SNCs.