Just last week:
— Housing regulators cut minimum down payments on home loans.
All this comes as subprime auto loans for financially stretched buyers are surging. And the so-called too-big-to-fail banks that needed a taxpayer bailout in 2008 now loom even larger than before the crisis: America’s five biggest banks account for 44 percent of bank assets, up from 38 percent in 2007, according to SNL Financial.
The trend toward pre-crisis lending practices worries analysts who favored far-reaching reforms to safeguard the system.
“We’re on a very dangerous trajectory,” said
Johnson said he fears that last week’s congressional vote shows that bank lobbyists still carry the political clout to dilute financial regulations.
By all accounts, the system isn’t as vulnerable as it was before the crisis.
U.S. banks have increased their capital defenses against loan losses by over 27 percent since 2007.
“If you’re a banker who survived over the last five years,” Hunt said, “the last thing you’re going to do is return to that period of time. We’re nowhere close to returning to the type of loans” issued just before the crisis.
Still, watchdogs fear the risks are accumulating. Despite its overall finding that threats are moderate, Treasury’s research office warned of “excessive risk-taking during an extended period of low interest rates.”
The Treasury office also worries that more lending and trading are occurring beyond the reach of regulators in the so-called shadow banking sector of hedge funds and other investment firms, “where threats could be significant, but are more difficult to assess.”
Recent developments have compounded the worries:
— RISKY BETS
Derivatives are used by farmers and companies to hedge financial risks. But they also let traders speculate on bonds, currencies and commodities such as oil. Bad bets in the derivatives market sank
But last week, at the behest of bank lobbyists, the House slipped into a must-pass spending bill a repeal of the divide between traditional banks and derivatives trading. Banks say the move will preserve their ability to help farmers and businesses hedge against risks.
— LOWER DOWN PAYMENTS
But critics worry about a repeat of what happened in the early and mid-2000s: Families were encouraged, through low down payment requirements and loose credit standards, to buy homes they couldn’t afford. Millions wound up in foreclosure.
“It is dubious housing policy to encourage moderate-income people to take out mortgages on which they are likely to default,”
— RISING GLOBAL DEBT
Companies in emerging markets such as
— RISKY AUTO LENDING
U.S. regulators are warning about slipping credit standards for auto loans. The rating agency Standard & Poor’s expects lenders to make
S&P analysts concluded this year that “caution is warranted.” It fears “even looser credit standards” and riskier subprime car loans being packaged into bonds and sold to investors.
Repeating what they did before encountering trouble in 2008, automakers and finance companies are offering six- and seven-year loans to ease buyers into cars they otherwise couldn’t afford.
“We tend to forget financial history,” said
AP Business Writer