Shadow banks have proliferated. They now originate around half of America’s mortgages
broadcast of the 39th Super Bowl in 2005, there was an advert for mortgages from a firm called Ameriquest. “Don’t judge too quickly,” ran the slogan. “We won’t.” Ameriquest also sponsored the half-time show, where Paul McCartney opened with “Drive My Car”. Two years later and the firm was no more, part of the wider crisis in the mortgage market which prompted a global recession and nearly caused the financial system to collapse.
Certainly the regulatory system for banks has been transformed. In the 2000s most financial regulation was “microprudential”, focusing on the soundness of individual banks. Now “macroprudential” regulation is the norm. The idea is to ensure that the financial system as a whole can withstand nasty surprises. “Macropru” is useful in a world of low interest rates. When borrowing is cheap, households can bid up house prices to unsustainable levels.
All this can put the brakes on rapid credit growth. For high-risk borrowers, getting a mortgage is harder than it was, which is one reason why home ownership among the young has fallen. Banks have scaled back their mortgage operations. “The mortgage business… has experienced increasingly lower returns as new regulations add both sizeable costs and higher capital requirements,” wrote Jamie Dimon, the boss ofBut new risks are emerging. In recent years non-bank mortgage lenders have proliferated.
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