Since the worst days of the financial crisis and ensuing recession, many banks have made substantial progress in repairing their balance sheets; however, save perhaps for the Canadian ones, banks’ reputations have not significantly recovered. This is largely due to the view that they have been slow to expand credit after the threat of their bankruptcy was removed by bank bailouts from the US and other governments.
Here is a proposal for how banks can expand credit faster, grow profits more quickly and improve their collective reputation, especially among those starved for credit.
RISK OFF-LOADED LENDING (R.O.L.L.)
Model: Internet-enabled lending to higher risk borrowers which tips (happens) only when a critical mass of low(er) risk borrowers sign up (as invited by the higher risk would-be borrowers via social networking tools like Facebook and Linkedin).
Benefit: Banks could make credit available to higher-risk borrowers again (within reason) and thereby increase their lender/loan portfolio, while still maintaining a low average default risk.
(Copyright 2011 Velvet Talk Management – please cite the innovator of R.O.L.L. if you deploy or write about it.)