Wait. Private lenders, who are funded by borrowing from banks, are LESS leveraged than banks, who are funded by deposits? If such a private lender gets into trouble and puts those bank loans at risk, there’s LESS risk of contagion? Credit quality spreads are [in fact, very] tight in the aggregate but “ under the hood” everything is OK? What does that even mean?
Wait. Private lenders, who are funded by borrowing from banks, are LESS leveraged than banks, who are funded by deposits? If such a private lender gets into trouble and puts those bank loans at risk, there’s LESS risk of contagion? Credit quality spreads are [in fact, very] tight in the aggregate but “ under the hood” everything is OK? What does that even mean?