Larry Summers

New Lending For A New Economy
Lawrence H. Summers
1. Secular stagnation: across developed economies, deflationary pressures are substantial. 20.0
Actual and Potential GDP, U.S.A. (Trillions of 2009 dollars)
19.0
18.0
17.0
16.0
15.0
Potential GDP, 2007 Estimate
Potential GDP, 2014 Estimate
14.0
Actual GDP
13.0
2006
Source: CBO
2007
2008
2009
2010
2011
2012
2013e
2014e
2015e
2016e
2017e
2. Downward trend in rates: capital is abundant, but we need to promote investment.
7
Natural Rate of Interest, form Laubach and Williams (2003)
6
5
Percent
4
3
2
1
0
-­1
1960
1970
1980
1990
2000
Source: Updated estimates from www.frbsf.org/economic-­research/economists/john-­williams
2010
3. Growing bank spreads: net yield at an all-­‐time high.
Net Bank Yield
4. Improving the experience: New lenders are driving higher customer satisfaction than incumbent banks.
Net Promoter Score (Would you recommend to a friend?)
Lending Club
Credit Unions
Community Banks
Regional Banks
Credit Cards
National Banks
0%
Source: Lending Club
10%
20%
30%
40%
50%
60%
70%
80%
90%
5. Lowering costs: Lending Club has significant operating cost advantage vs. banks.
Source: Lending Club, McKinsey & Company
6. Better underwriting: More data and use of technology are enabling smarter credit decisions.
OnDeck Score Version 5 vs. FICO vs. No Underwriting
Source: Morgan Stanley, OnDeck company data
7. Complex regulatory landscape: Policymakers need to speed up regulatory clarity.
Relevant federal banking and securities laws:
Relevant federal regulators:
•
•
•
•
•
•
•
•
•
•
•
•
Equal Credit Opportunity Act (ECOA)
Fair Housing Act (FHAct)
Bank Secrecy Act/OFAC
Truth in Lending Act (TILA)
E-­Sign Act (FDIC)
Dodd-­Frank -­ Wall Street Reform and Consumer Protection Act
Know Your Customer (KYC)
Fair Debt Collection Practices Act (FDCPA)
Fair Credit Reporting Act (FCRA)
Fair and Accurate Credit Transactions Act (FACTA)
CARD Act (CARD) •
•
•
•
•
•
•
•
•
•
Source: Foundation Capital, Congressional Research Service
Securities and Exchanges Commission (SEC)
Federal Reserve (FED)
Financial Industry Regulation Authority (FINRA)
Office of the Comptroller of the Currency (OCC)
Federal Deposit Insurance Corporation (FDIC)
National Credit Union Administration (NCUA)
Consumer Financial Protection Bureau (CFPB)
Federal Trade Commission (FTC)
Financial Stability Oversight Council (FSOC)
Commodity Futures Trading Commission (CFTC)
Federal Housing Finance Agency (FHFA)