Non-banks are making markets nervous again

As sudden banking strains in the US show, the growth of non-banks is a mixed blessing, especially if they use bank funds for lending. The motto should be 'better safe than sorry'

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Those who fail to learn from history are doomed to repeat it, goes an old saying. Presumably, the financial system of the West has learnt a thing or two from its 2007-08 crisis that was triggered by defaults in the US subprime mortgage market.

That may explain why its latest crisis, this time in the US subprime market for auto loans, has not led to a larger meltdown—so far. Sure, Jamie Dimon, CEO of JP Morgan, an investment bank that had to write off $170 million in bad debt to a car-loan company, Tricolor, has warned that “if you see one cockroach, there are probably more.” But after the initial panic following the disclosure by US lenders Western Alliance Bank and Zions Bank that they had been hit by bad or fraudulent loans, sparking fears of problems in the wider financial sector, no new bugs have been sighted. For now, the hope is that these may turn out to be isolated incidents. But memories of the 2023 collapse of California-based Silicon Valley Bank have made markets nervous.