Workshop: Navigating Credit Risk in Marketplace Lending Opportunities
Chief Credit Officer, Cross River Bank
Co-founder & Managing Director, Capital Markets/Nonbank Lenders, Bridgeforce Inc.
Barak J. Sanford
Managing Director, Promontory
The growth of marketplace lending has led many banks to consider loan purchases and origination partnerships with marketplace lenders. The right marketplace-lending transactions can offer banks real economic value. The challenge is to distinguish the right opportunities from the wrong ones. While making this distinction involves an array of factors, the key driver is – not surprisingly – credit risk.
While many banks prepare for the regulatory attention given to compliance aspects of third-party management, they typically are less prepared to deal with the unusual credit risk issues critical to evaluating a potential transaction with a marketplace lender. Nonetheless, astute assessment of the credit risk an opportunity presents is fundamental to correctly estimating its risk-adjusted return. Moreover, such credit risk – and how well a bank assesses it – is a chief focus of regulators assessing a bank’s management of this particular type of third party.
This workshop will cover key questions banks need to ask in order to assess which platform lenders will more consistently produce high-quality assets, and which will leave the bank with substandard loans and credit losses, perhaps accompanied by a regulatory enforcement action. Attendees will learn how to seek satisfactory answers for such questions as:
- How real is the novel value proposition at the heart of the lender’s model as applied to the loans connected to this specific partnership?
- Is the lender’s model compatible with the its growth and expansion plans given expected market conditions?
- Will the lender have the discipline – and ability – to slow growth when conditions warrant?
- What is the risk to the bank’s profit margin from regulatory costs that the lender will not – or cannot – cover?