While major U.S. banks are cleaning up their books, the shadow banking system is dirtying its hands
Share Now on:
The U.S. Justice Department has announced Goldman Sachs has agreed to pay more than $5 billion for its role in the home mortgage crisis.
It’s the fifth, and perhaps final, U.S. bank to settle up with the government.
Part of the penalty is earmarked for underwater homeowners, distressed borrowers and communities hit hard by the mortgage meltdown.
Charles Peabody from Portales Partners said the settlements, coupled with Dodd-Frank regulations, have helped shift big bank culture.
“Banks have become much more cautious. They’ve de-risked their balance sheets. They’ve increased their liquidity,” he said.
But as banks have shed their risky business, the so-called shadow banking system has happily taken it on.
The personal lenders, the auto lenders and even some mortgage companies are letting people borrow too much.
“The role of non-banks has increased 400 percent in just the last three years,” said Karen Petrou, who’s with Federal Financial Analytics.
“Those companies are under none of the new regulations designed to prevent something like the Goldman Sachs case from happening again,” she said.
The question is whether we are redefining mortgage banking so consumers are protected.
Petrou says she’s not sure we are.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.