Raise Interest Rates To Spur Lending?
We know that flies in the face of all conventional economic wisdom.
But for the past year the Federal Reserve has been providing commercial banks with an almost limitless supply of free money in the hope that they’ll make lots of new loans and help boost the economy out of the recession.
Yet the banks are extending precious little credit to consumers. To small businesses. To anyone.
Could it be that Fed Chairman Ben Bernanke has pushed conventional economic wisdom too far by driving interest rates too low?
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Lending Club Regains Momentum, Posts 40% Gain in P2P Loan Originations Compared to Dec. 2007
If you think your 2008 was stressful, imagine having to shut down for an extended and unknown period (it turned out to be 6 months) just 10 months after launch. Then spending hundreds of thousands of dollars on SEC paperwork that your major competitor avoided (temporarily it turns out), all the while watching that same competitor take your market share while you keep your mouth shut via SEC mandate.
That was Lending Club’s year. But unlike so many horror stories of the past year, this one has a happy ending, at least so far. Not only did Lending Club reopen for business Oct. 14 at our Finovate conference (demo video here), within weeks they had already moved ahead of last year’s origination pace (note 1).
As you can see in the table below, Dec. 2008 was substantially ahead of Dec. 2007 in all measures except average loan size and approval rate, which dropped a full 2 points:
Number of applications increased by 78%
Number of approved loans increased by 43%
Dollars originated increased by 29%
Average loan size approved declined by $1,000 (9.4%)
Overall approval rate was 8.5% last month compared to just over 10% a year ago
Table: Lending Club loan origination results: Dec 2008 vs. Dec 2007
| Dec 2008 |
Dec 2007 |
Change | % Change | |
| Number of loans originated | 238 | 167 | + 71 | 43% |
| Dollars originated | $2.28 mil | $1.77 mil | + $0.5 mil | 29% |
| Number of loan applications | 2,798 | 1,575 | + 1,223 | 78% |
| Approval rate | 8.5% | 10.6% | (2.1%) | (20%) |
| Dollar value of all applications | $24.2 mil | $14.4 mil | + $9.8 mil | 68% |
| Average loan size approved | $9,600 | $10,600 | ($1,000) | (9.4%) |
| Average loan size declined | $8,600 | $9,000 | ($400) | (0.4%) |
| Site traffic (unique visitors) | 78,000 | 58,000 | 20,000 | 35% |
Source: Loan volume from Lending Club, site traffic from Compete, calculations by Online Banking Report, 8 Jan 2009
Here’s the monthly origination chart (in US Dollars) courtesy of LendingClubStats.com who compiled the figures from data provided by Lending Club.
Source: LendingClubStats.com, 8 Jan 2009
Also, site traffic is up 35% year over year according to Compete.
Source: Compete, 9 Jan 2009
