Pub. 12 2022-2023 Issue 3

Why Banks are Embracing Loan Marketplaces as a Solution to Liquidity The pandemic created a unique confluence of events that affected the lending market. As recently explored by the Federal Reserve, bank deposit growth soared during the pandemic, with total deposits increasing more than double the pre-pandemic growth rate. In addition, many banks took a more conservative approach to lending, concerned about the potentially negative impact of the pandemic on employment and businesses. And consumers’ declining credit quality, paired with the still approaching CECL transition, forced institutions to provide for greater losses. Many of these trends have continued into 2022, leaving banks flush with liquidity. As lending remains a primary revenue driver, many institutions are revising their lending strategy to generate yield for investors. Such strategies include embracing digital lending systems, streamlining small business lending processes or navigating loan marketplaces for participation across the country. How Does a Loan Marketplace Work? A trusted loan marketplace connects bankers with access to loan participations and options to buy or sell whole loans or loan portfolios, creating a curated network of regional community financial institutions, third-party originators and investors across the U.S. This technology can streamline existing procedures, help you optimally align with target relationship profiles and drive return from excess liquidity. Since there’s no cost to look at potential loan opportunities available and anonymity remains until you finalize a transaction, it’s perfect for any institution hoping to become: • Participants: Buyers can access key loan metrics and attributes of each deal upfront, including the seller’s underwriting process, to help you determine what’s right for your portfolio. Once a whole loan, participation or another opportunity of interest is identified, the buyer submits preliminary interest through the platform. The originator or selling party reviews the request, and once NDAs have been executed, the buyer or participant work together to finalize the transaction outside of the marketplace. Private personal information is not exchanged until this time, and this transaction costs 25bps, or 0.25% of the interest rate, to buy or sell. • Lead Lenders: Sellers can efficiently and anonymously post participation opportunities. Once the loan or loan portfolio is approved and posted live on the marketplace, prospective participants/buyers can search, view, favorite and/or submit offers on the opportunity or any other active deal(s) on the platform. Buyers can also set specific parameters, enabling the matching algorithm to automatically find and recommend new opportunities or capital partners that meet their unique transaction criteria, including asset type, size or geography. Balance Your Portfolio and Credit Risk with a Loan Marketplace These marketplaces enable you to become partners of a sort with other banks, establish preferred loan types and optimize quality and price by selecting from a diverse set of deal flows. This gives a big boost to financial Continued on page 28 By Simon Fisher, CSI September • October 2022 27

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