Monetary Matters with Jack Farley “Potemkin Village of Credit” | BankRegData’s Bill Moreland on Banks’ Loan Modification Morass & Note-on-Note Financing Spree
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Aug 26, 2025 Bill Moreland, Principal of BankRegData, sheds light on the murky practices of loan modifications in the banking industry. He argues that banks' heavy reliance on these modifications may distort delinquency reports, creating a misleading credit landscape. Moreland introduces note-on-note financing, a scheme that obscures actual losses on balance sheets. The discussion raises alarms about the impact of regulatory changes and the growing disconnect between banking practices and everyday investors, underscoring the urgent need for transparency in the financial sector.
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CRE Mods Are Concentrated And Large
- Bank of America and peers modified large shares of CRE non-owner loans, sometimes over 8% of that portfolio.
- These performing mods often include many already-delinquent accounts and substantial "extend-and-pretend" balances.
Card And Student Loan Mods Hide Risk
- Card issuers and monoline lenders also used heavy modification programs; Discover and Sallie Mae show sizable performing mods with high delinquency within them.
- Many modified accounts were already late when restructured, so modifications mask charge-off risk rather than eliminate it.
NDFI Lending Shifts Risk Off Main Street
- Banks expanded lending to non-depository financial institutions (NDFIs) and purchase-carry trades, redirecting risk through intermediaries.
- That growth can disguise credit concentration and reduce required capital or reserves for banks.
