> There is nothing wrong with that if the banks are allowed to fail when the loans don’t pan out. Underwriting is supposed to be about managing risk, not comple

> There is nothing wrong with that if the banks are allowed to fail when the loans don’t pan out. Underwriting is supposed to be about managing risk, not completely avoiding it. The problem isn’t the analysis, rather it is not letting banks absorb the consequences of being wrong. I agree with you, with the caveat that many of these receivables are taken off balance sheet through a securitization process, and the resulting structure is almost unable to technically default as long as the AAA tranche interest is paid. Responsibility for originating good loans, meaning they are creditworthy in a downturn, goes down if you can securitize them into a credit enhanced structure or sell them to another investor. > Generally, I agree. The straitjacket then bank regulators have placed around the ability of banks to go outside of the government defined process of evaluating credit-worthiness doesn’t help. The rules make it near impossible for many companies to get loans. This problem incentivizes companies to play games to get around the crazy restrictions. In my opinion (not worth much) the industry is simultaneously under and over regulated. Enough bad actors that reducing the regulation is a bad idea, but the existing regulation makes lending more challenging and constrains growth on most businesses, who are operated in good faith.