A little more disclosure would help.
A lot more. And if this level of disclosure ("an arrangement exists, characteristicless and of unknown magnitude/structure") is what the public companies feel they can reasonably disclose, one has to wonder what some of the private companies are doing & not disclosing.
By the way, I agree with you about part of this issue. The lending industry, and the hedge funds guys, and probably banks, have all manner of (... I'm searching for a polite word...) complexities under the covers that us normal folks don't see and don't normally understand. I'm learning a lot more about these things lately, not only because of things going on at LC, but also in a small lender I invested in awhile back.
The oldest line on that is "the art of banking is to conceal risk"... If this industry is really 'new', a lot more transparency could do.
For me, banks hold deposits, and are government-insured, so must follow rules from their insurer (the government). I do realize there are a wide ranging set of opinions, including issues such as systemic risk and "too big to fail" and whatnot. But for me, the answer is pretty simple. If the government had kept the rules simple, there wouldn't be any TBTF banks. I'm for keeping the rules simple (simpler) now. Deposits = bank regulation.
Yeah, the non-deposit-taking is the sort of argument of last refuge. That goes out the window when you find out that xyz entities that are buying the loans are levering up. How do they do that? Through a deposit-taking, FDIC-regulated bank. It's indirect & abstracted out by a degree or two, but the effective reality is the same (maybe worse, as it concentrates the risk into larger, discrete entities rather than spreading it out - they're kind of effectively stealing the banks' diversification ability/functions, too, in a way, if you think about it from a regulatory/bank angle). LC, in the old days, used to have a line with SIVB - Renaud referred to that as "priming the pump", back then - which was a point of contention until they got enough buyers to fund all of the loans (or, at least, said that they did) and then they became a "marketplace"... Everyone else became one, too - at least in PR. Now I don't know - and I also suspect that most people running these entities (and the various agencies who don't know if they're supposed to be regulating them) don't know either - what to call them, how to treat them, etc... A coupla months ago there was the "Marketplace Lending Association" to distinguish between "good" (less-risky) platforms that had actually had marketplaces / didn't hold credit risk and "bad" (risky) ones which didn't have marketplaces / did hold credit risk... Now, who knows what the hell is going on with any of them, public or private...
Apparently, not even the people running the largest of them know what business it is that they're in or have any idea what to call it...
I think the only thing upon which they can all probably agree is what they definitely
don't want to be called - but certainly do look like.
One of the morals of the story may wind up being: If you don't want to be (or be called) a "bank", do not go hire a bunch of bankers.
Like anyone else in any other profession, they have a tendency to want to do what they are used to doing --- and it's nothing "new".
ETA: I might owe Cagney/SoFi another look... While they're doing the captive fund thing, too, and their operations/structure looks a bit like it's too bank-y, their marketing/messaging, while vague, at least seems to be grappling with these conceptual issues - before anyone else. They might be halfway to some sort of decent innovation, if they don't tangle themselves up in financial engineeering... I mean, they are at least
trying to get their customers laid - instead of screwing them. That's certainly
not bank-like. 