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.
If you’re a member of your local public radio station, we thank you — because your support helps those stations keep programs like Marketplace on the air. But for Marketplace to continue to grow, we need additional investment from those who care most about what we do: superfans like you.
Your donation — as little as $5 — helps us create more content that matters to you and your community, and to reach more people where they are – whether that’s radio, podcasts or online.
When you contribute directly to Marketplace, you become a partner in that mission: someone who understands that when we all get smarter, everybody wins.