Banking regulation gives P2P lending a major boost

A few weeks ago, I mentioned a new KPMG report describing the evolution of the current bank regulatory framework. The consultancy published its ‘Part 2’ a couple of weeks ago and it is interesting reading.

KPMG effectively reaches similar conclusions to the ones of this blog: the current regulatory framework makes it uneconomic for banks to extend credit to corporates (small to large), and the structural separation of investment and retail banking activities is nonsense.

In the case of corporate lending, KPMG points out that “many SMEs are disillusioned with banks, leading them to seek alternative channels of borrowing, including peer to peer lending.” This sounds spot on: regulation has always been self-defeating by driving financial activities into the shadows. And, coincidentally, Morgan Stanley just published a large report on P2P lending (which they call ‘marketplace lending’ as it’s not really P2P anymore…) forecasting that it could reach 10% of total unsecured consumer and SME lending in the US by 2020 (with other countries, in particular the UK or China, to follow).

Perhaps this is the key to unlocking corporate/SME lending growth and getting rid of this secular stagnation theory.

Partly mirroring the arguments I developed in a series of posts starting here, KPMG’s arguments against the structural separation of the various activities of banking are worth reproducing here in whole: