Michael P. Regan, Columnist

A Bear Market in the Shadows

Nontraditional lenders face rising interest rates and increased regulatory scrutiny.

December 22, 2015 at 3:14 PM UTC

Michael P. Regan is the global team leader for cryptocurrencies at Bloomberg as well as a former senior markets editor and former Americas team leader for Bloomberg's Markets Live blog. He has covered Wall Street for Bloomberg News as a columnist and editor since 2007. He previously worked for the Associated Press.

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The terrible, no-good very bad year for energy stocks is no secret to anyone, but there's a whole other batch of ugliness that you may have missed: the shadow banking system.

"Shadow bank" is a term coined by former Pimco economist Paul McCulley in 2007 to refer to nontraditional lenders, and it has been applied to a wide variety of firms that may not seem like they belong in the same boat otherwise, everything from online loan originators, mortgage-finance companies, money-market mutual funds and hedge funds to good old-fashioned pawn shops and loan sharks.

As for shadow banks that are publicly traded, the industry is in a bear market this year, with average declines of more than 20 percent when considering the firms that analysts at Keefe, Bruyette & Woods consider to be shadow banks. That's way worse than the rest of the financial stocks; the Russell 3000 Financial Services Index is down less than 3 percent year to date. Among those in the shadows sticking out like sore thumbs are OnDeck Capital and LendingClub, both of which went public with great promise not much more than a year ago but are down more than 50 percent in 2015.