By Tom Bradley

With more stringent banking regulations post-2008, the lending and finance landscape has changed significantly. Specifically, the U.S. and European banks have exited a number of businesses because they’re now required to hold more capital against the assets. Profits are reduced and for many banks, the capital is not available.

Meanwhile, hedge fund and private equity managers have been happy to step in and provide funding for riskier loans and trading strategies. These firms don’t have the same regulatory restrictions because they’re funded by money from investors (pension funds, endowments, wealthy individuals, merchant banks), not bank deposits.

Mark McQueen of Wellington Financial has been one of the louder commentators on this topic. His blog provides an insider’s view on specific industry topics (including Kevin O’Leary) and is always colourful. In a piece last week, Mark went off on bankers who are complaining that new regulations favour non-bank lenders.

The following excerpt sums up his view. (Note: On banks and lending, Mark has a vested interest. Wellington is a private lender.)

Now, if the bank managers don’t like the fact that regulators are mandating that they should require covenants on every commercial loan, and must abide by certain leverage limits, they should be forced to read every NYT [New York Times] or Wall Street Journal edition from 1928, 1929, 2007, 2008 and early 2009. If that refresher isn’t sufficient, bank regulators need to outline for management the steps a bank can take to shed itself of deposit insurance, de-lever the balance sheet, and live with the consequences just as every other private lender that doesn’t benefit from the inherent government guarantee that keeps them in business.

Banks have a structural competitive advantage over the rest of the lending space, which is why their market share is so overwhelmingly high. It is disingenuous to complain about the apparent luxuries of the non-bank lending space, and Regulators shouldn’t duck from doing their jobs.

In the great white north, we are fortunate to have one of the strongest banking systems in the world (the strongest?). It comes as a result of good management, a relatively strong economy, a friendly and supportive government and a firm regulator.

Of these four factors, I’m hoping that three continue. But to Mark’s comments, I’m also hoping that the Federal government gets a little less cozy with this oligopoly. Despite the fact that the Canadian banks earn 18-20% return on equity (in a 2% inflation world), they’re backstopped on their mortgage business and allowed to operate relatively free of anti-trust or conflict of interests restraints.