Ratesetter has so far cushioned its investors from losses like the £80m below, however the provision fund is around £17.3m at present. To put this into context, the total money lent out by Ratesetter is £543m. It would take just 3.2% of loans to default to wipe out the fund (defaults last year were 0.73%, down from 2.21% the previous year).
With this in mind, should safeguards be put in place by the regulators in order to protect depositors?
For a number of reasons, FSA chief Lord Adair Turner predicted that “the losses which will emerge from peer-to-peer lending over the next five to 10 years will make the worst bankers look like lending geniuses”.
The peer-to-peer lender Ratesetter has been hit by £80m of struggling loans in the first major setback for the nascent online lending sector. The endangered loans are among the first signs that the fashionable peer-to-peer lending sector might not be immune to the problems that have plagued traditional banking. They have emerged just as the company has started to promote itself more as a business with establishment connections and less as a startup.