Bank of England Governor, Mark Carney, has warned that a new breed of internet-only lenders are beginning to pose risks to the financial system and without tighter regulation they could trigger the next financial crash. High street banks were being displaced by online lenders that were untested in a recession, when bankruptcies might make their loans worthless.
The warning follows a speech last year by Adair Turner, the former chief financial regulator, who said losses on loans made over the internet could make the worst bankers look like “lending geniuses”. The Bank of England has several initiatives under way to allow peer-to-peer online lenders access to central bank funds and facilitate transactions.
Responding to the Bank of England’s latest comments on Peer to Peer Lending Kevin Caley, Founder and Chairman of ThinCats said ”Mark Carney’s views that P2P may not be able to grow in a risk-free and sustainable way, due to issues such as leverage and liquidity mismatches, seem at odds with the very nature of the sector. The whole point of P2P is that lenders make loans directly to borrowers with no intermediation, and for that reason it cannot involve leverage or liquidity mismatch. By using a ‘pure’ P2P approach, the industry has achieved fast but sustainable growth, and any future risks will be regulatory ones, as opposed to systemic risks associated with P2P.
“It should be remembered that P2P is a product of the SME lending market, which for hundreds of years was monopolised by a few large banks. The advent of P2P is due to the banks largely losing interest in the SME market, and has offered a new and innovative a way to break that monopoly. The economy requires stimulus from the ground up and the alternative finance sector is playing a vital role in this by bridging the business funding gap.”