Banks Still Fund the Shadow Bank Market

I have to laugh as I continue to see confirmation that banks still fund a big part of the Shadow Bank market.  Most of you who read TFM know  there is a massive movement to create non bank entities to fund wholesale and consumer credit. We are dealing with many of those platforms that enable the transfer of assets here on Trade Financing Matters and Spend Matters.  Recent deals of Banking/Funding/Payment providers partnering or buying platforms

  • Nipendo / Integrate Financial
  • Tungsten / BNYM Insight Investment
  • Basware / Arrowgrass Capital
  • Taulia / Greensill Capital
  • ApexPeaks / ASYX
  • Demica / JRJ Group

And yet two news stories came across my desk last week, each in their own way showing how banks still are “the Playa” when it comes to financing FinTech.

The first story is from Credibly, a small business lending platform since 2010 that announced a $70MM credit facility led by SunTrust Bank.  Banks make loans to other specialty finance companies out of their Financial Institutions Investment Banking group.  In Credibly’s case, the new credit facility is consistent with Credibly’s three-prong financing strategy: on-balance sheet, whole loan sales, and securitization. On balance sheet is supported by Suntrust.  AloStar provided their first credit facility back in 2014 along with an unnamed Private Equity group.

The Suntrust terms allow flexibility for the credit facility to expand up to $100MM, which more than doubles Credibly’s on-balance sheet funding capacity.

See the story here 

The other story came out in the WSJ where J.P. Morgan agreed to acquire nearly $1 Billion worth of Lending Club loans.   Large banks are finding their return on equity declining rapidly in this new regulatory era, and flush with deposits with little outlets. JPMorgan agreed to buy consumer loans with a FICO score of 700+, so prime grade.   Perhaps it is a sign of confidence in the new consumer lending model, or a sign banks need to increase ROE given market conditions.

See story here  

One thing for sure, Banks put these solutions through the compliance and analysis rigor, so it is not so simple for specialty finance companies or non banks to access a line of credit these days.

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