Yesterday, new Consumer Financial Protection Bureau chief Richard Cordray gave a speech at the Brookings Institute in Washington, D.C.
Cordray defended his recess appointment and minced no words in saying he viewed his appointment as valid and that he he would begin working to lead the agency immediately.
But most interestingly, he said this about the financial crisis: “most of the problems (of the financial crises) were created by non-bank institutions without regulation.”
So just what are non-bank financial institutions? Broadly defined, they are financial institutions that provide bank-like services but don’t have a full banking licence nor the attendant regulation.
But what kinds of businesses are these?
Updated: after an initial oversight that was correctly identified by commenters, we’ve added a slide on mortgage originators.
They offer many different types of products that have bank-like functions, such as credit insurance (i.e. CDS), collateral insurance and interest rate insurance.
There's a lot of blame to go around here.
Pushing consumers into sub-prime mortgages unnecessarily, employing faulty documentation, improper incentives for employees from the front lines to the C-suite, sweetheart rates for influential public figures, the list of faults goes on and on.
The function here is straightforward: they cash checks for consumers who lack bank accounts.
The problem lies in the fees and terms associated with this basic service, which are often exorbitant and regulated on a state by state basis.
Another service commonly provided to those without bank accounts and relied on to conduct basic financial transactions.
One of the oldest banking functions, but provided to consumers across the country by non-banks.
Since micro lending burst onto the scene as a way to help some of the world's most impoverished people, it has been lauded as one of finance's great public services.
And while it enjoys strong political support, there are concerns the domestic micro-lending is under regulated and targets consumers who could be eligible for a traditional loan at an established bank or credit union.
That's right, pawn shops are financial institutions. They offer loans and take collateral, albeit in a context most Americans don't associate with 'banking' per se.
But they are lightly regulated and have a customer base that tends to be dist advantaged and under-informed about the terms of they are agreeing to.