'Social Science Experiments in Lending Always End Badly': Comments of the Week
August 14, 2015 7:30 AM
American Banker readers share their views on the most pressing banking topics of the week. Comments are excerpted from reader response sections of AmericanBanker.com articles and from our social media platforms.
On the suggestion that lenders should take into account borrowers' situational factors (social networks, incentives, constraints) rather than focusing on their credit scores:
"Running a social science experiment in the lending arena always ends badly, for lenders and ultimately borrowers."
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On whether expanding credit access is a worthy goal in and of itself:
"When you get down to it, the goal is good loans to people who will pay them back, not simply 'expanding credit' which is really just code for social engineering."
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On Sen. Elizabeth Warren's concerns about whether banks could use a new electronic messaging system to dodge public scrutiny of potentially shady communications:
"Insert comment about using Hillary using hdr22@clintonemail.com [here]."
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In response to the claim that banks have to choose between paying steep regulatory costs now or else forking over even more money after a crisis (<a href="https://twitter.com/BrianRKnight/status/631228051930660864" target="_blank">via Twitter</a>):
"Or you can pay for regulation and then have a crash anyway because the regulation didn't work or anticipate the next threat."
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On the Office of the Comptroller of the Currency's efforts to get a better grasp of new financial services innovations such as digital currencies, neobanks and marketplace lending:
"It is refreshing to see the OCC start thinking about the new banking! After years of chastising rent-a-charter innovations or closing down direct-deposit advances they are finally embracing the fact that banks need to step up or lose out. Let's see if the old dogs can really adopt a new attitude before they look like taxi drivers in an Uber world."
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On the difficulty for banks of converting core processing systems (<a href="https://twitter.com/Ghela_Boskovich/status/631173098859933696" target="_blank">via Twitter</a>):
"Heart & lung transplant while the patient runs a marathon
Ideal time will always be moot. #coretransformation ."
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On the community groups that frequently protest bank merger deals, delaying regulatory approvals:
"Where Congress is often concerned over 'regulatory capture,' a concept in which the federal banking agencies are seen as advancing the special concerns of the very entities they are supposed to regulate, there should be equal concern over a constituency capture, for lack of a better term, in which community groups often hold the regulatory process hostage."
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On an economist's suggestion that the Federal Reserve will be hard-pressed to raise interest rates because private balance sheets have come to depend upon low interest:
"The author is correct that there are economic distortions that have been created by [zero-interest rate policy], that will cause problems when the ZIRP subsidies disappear, but those distortions and their risks will only grow larger the longer ZIRP persists. In the end, it will be harder on us all NOT to return to market rates. Time will not make the problems cited by the author any easier."
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On Sen. Marco Rubio's claim during a presidential debate that the total number of banks has declined by 40% since the passage of Dodd-Frank (the real number is roughly 18%):
"Oh, so it's 'only' 18%! Well, there is one fewer community bank today than there was yesterday, and there will be one fewer tomorrow, and 7 fewer in a week, as we continue to lose one a day. Unless things change, we get closer to Rubio's numbers, not farther away."
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