We need to adopt a more nuanced view of credit that considers not only the cost of credit, but also the cost of default and the cost of having no credit.
In addition to credit risk from leveraged loans and other types of assets, an added worry for participations is how they would be treated in a failure of the originating bank.
In guidance on banks' resolution plans, regulators effectively have made important policy decisions about liquidity transformation that were not subject to notice and comment.
Banks and nonbanks should accept that more fintech regulation is inevitable, but how far regulators go will depend in part on how well companies demonstrate they are managing risk.
