RBS warns of peer-to-peer lending and shadow banking risks
Risks to the financial system are being pushed out of the regulated banking sector to less regulated areas, according to the chair of Royal Bank of Scotland (RBS).
Sir Howard Davies highlighted peer-to-peer lenders and the shadow banking system as areas where systemic risks could build up in a speech today.
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While standards have been raised among regulated entities, lending by unregulated firms is a source of risk, he said.
“Indebtedness, the total of debt, has continued to go up,” Davies said, with money market funds, hedge funds and other asset managers stepping in to keep debt growing.
The marketing of peer-to-peer lending to retail customers has also proven problematic, he said.
“Whenever you squeeze the regulated sector […] you create incentives for activities outside the regulated sector,” he said.
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Speaking to mark the 10-year anniversary of the financial crisis, during which RBS was part-nationalised, Davies said the British banking landscape will become much more diverse in the coming years, but mergers of the biggest UK lenders are unlikely.
Davies said it is “difficult to see any merger possibility”, but that “there will be a lot of movement below the top level”.