Primary activity of banks Loans Resources to Borrower Return to Lender Monetary Policy Credit creation relies on banks Reserve ratio Money multiplier Secured vs unsecured loans Collateral Offset adverse selection ID: 1027481
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1. FintechChapter 6: Bank Lending
2. Primary activity of banks:LoansResources to BorrowerReturn to Lender
3. Monetary PolicyCredit creation relies on banksReserve ratioMoney multiplier
4. Secured vs unsecured loansCollateralOffset adverse selectionUnsecured: credit cards
5. LoansCommercial and IndustrialReal estateConsumer loansInterbank loansOther, including securities lending
6. Nonfinancial Corporate Business; Depository Institution Loans Not Elsewhere Classified
7. Small Business Administration Loans7(a) start, acquire and/or enlarge a small businessCDC/505 community economic developmentMicroloansDisaster loansExport assistance loansVeterans and Military Community loansSpecial Purpose loans
8. Commercial and industrial loansShort term loansBusiness lines of creditEquipment financingInventory financingMerchant cash advancesBusiness credit cardsAccounts Receivable financing (factoring)Construction financingReal estateSyndicated loans
9. LIBORIndex used as a base for floating rate loansSurvey of banksManipulation scandalNow administered by ICEProposal for future changes
10. Real estate loansCollateralDown payment/termARMReverse mortgagesHome equity loanMortgage backed securities
11. Total Household Debt
12. Other Sources of Household Debt
13. Other categories of household debtCredit cards are loans, debit cards are notDefaults 7-10%Total 2016 credit card debt $1 trillion Auto loans $1.2 trillionStudent loans $1.34 trillion
14. Payday lending12 million American usersBad credit or no credit history$500 or lessShort term: next pay checkHigh fees: APR 400%?
15. FICOReporting agencies: Equifax, TransUnion, ExperianFair Credit Reporting Act of 1970Fair Isaac and Co (FICO)Data
16. Credit data35% of factors concern payment history30% reflect amounts owed15% involve length of credit history10% new credit: a pattern of opening several new loans at the same time might signal credit problems.10% credit mix: this is the kinds of loans an applicant may have outstanding
17. Credit scores300-850 (NextGen to 950)800 +: This is the highest range of FICO Score. Approximately 1% of consumers in this category are likely to become seriously delinquent in the future.740 to 799: This is a range of very good FICO Scores Approximately 2% of consumers with a credit score between 740 to 799 are likely to become seriously delinquent in the future.670 to 739: This is the median range and consumers in this range are considered an “acceptable” borrowers. Approximately 8% of consumers in this range are likely to become seriously delinquent in the future.580 to 669: These are below average or “fair” FICO Scores. Consumers in this range are considered subprime borrowers and getting credit may be difficult with interest rates that are likely to be much higher. Approximately 28% of consumers with a credit score between 580 to 669 are likely to become seriously delinquent in the future.579 and lower: Consumers with FICO Scores are considered to be poor credit risks and may be rejected for loans. Credit card providers and utilities may require a fee or a deposit. A credit score this low could be a result from bankruptcy or other major credit problems. Approximately 61% of consumers with a credit score under 579 are likely to become seriously delinquent in the future.
18. VantageChallenging FICOCreated by Equifax, Experian, and TransUnion in 2006Free to consumers
19. Fintech in LendingMarketplace lendersPeer to Peer (P2P)Peer to Commercial (P2C)Lighter regulationCredit analysis alternatives to FICO scores
20. Marketplace lendersonline application processfast responsehigher approval ratesenhanced credit analysissuperior customer experiencelower rates than some alternatives (credit cards, payday lenders)both sides of market (borrowers and lenders)online toolslighter regulatory burdenlow overheadentrepreneurial culture
21. Loan originations down YOY Q4’16 for key U.S. digital lenders
22. Fintech CompaniesLending ClubKabbageOnDeckFunding CircleLendUpSoFiKiva
23. Mortgage market is now dominated by non-bank lenders