Shadow Banks, How We Got Here
WHO LETS A FOX GUARD A HEN HOUSE?
THAT’S A FAIR REPRESENTATION OF HOW WE ASSESS REGULATORY OVERSIGHT ON SHADOW BANKS.
How is Washington so confident that unregulated lenders will actually police themselves; that they will pull back when risks really do outweigh rewards? We’re intrigued by this odd sense of confidence that debt funds and shadow lenders will (a) recognize unmistakable warning signs of a credit collapse, and (b) act in time to avert yet another financial crisis.
How’d we get to this point?
Post-2008, commercial banks got so conservative that conventional real estate lending pretty much dried up, creating a void filled by debt funds affiliated with well-known private equity firms like Blackstone, Starwood, KKR and Goldman Sachs. Unencumbered by FDIC regulation, these shadow banks source capital from insurance companies, pension funds, endowments and wealthy investors, enabling them to fund senior mortgages like construction loans and mezzanine financing.
Fast forward to 2019 and these “non-bank financial institutions” are believed to have combined assets of between $600 billion and $900 billion, according to a recent Washington Post story relying on data from Bloomberg News and other industry sources. With returns ranging from six to 13 percent, can this unprecedented expansion of middle-market, high loan-to-value lending frenzy hold?
As veterans of over 30 years of economic cycles and participants in over 1,200 receivership matters nationwide, we’ve seen this movie before. But this time, with shadow banks replacing traditional banks as the lead actors, we think things will be different..
If you are involved in an issue that is dealing with receivership matters issues, we invite you to contact Douglas Wilson at 619-641-1141.