As banks beat a retreat from the mortgage market (down to 43% in 2015), non-banks have stepped in to fill this void. MarketWatch staffer Andrea Riquier takes a look at non-banks and the fear of liquidity constraints that goes with the turf.
While non-banks and banks comply with the same lending and mortgage servicing standards, they do not have equal reserves and resources. In the event of an economic downturn, non-bank financial firms' last resort for cash would be banks, which leads observers to fear liquidity traps:
“Non-banks are at a structural disadvantage to banks,” said Chris Whalen, head of research at Kroll Bond Rating Agency and a long-time bank analyst. “The people running these businesses know what they’re doing. But no matter what they’re doing, there’s someone sitting at Wells or Citi who can pull the plug.”