Martin North – Page 1004 – Digital Finance Analytics (DFA) Blog

Peer-To-Peer Lending, The US Experience

DFA has been tracking the progress of Peer-to-Peer lending, and it continues to grow fast round the world. Here is a summary from the Lending Mag covering the best U.S. Peer-to-Peer Lending Sites for Borrowers. It is quite interesting comparing the different business models, charging structures and sheer scale of lending through this channel. In the US, at least, it is becoming a valid alternative funding source.

#1 Prosper Marketplace

Prosper Marketplace is The Lending Mag’s first choice among U.S. peer-to-peer lending companies for borrowers. This popular p2p lending platform made history in the United States when they became the first peer-to-peer lending site in the country in 2006. Since that time, Prosper has experienced tremendous growth and success, having recently surpassed $3 billion in loans. Recently, they were named by Forbes as one of the most promising companies in America.

Prosper places as number #1 on our list of p2p lenders because of the accessibility and attention to customers that they provide. Out of all the p2p lenders we have had interactions with, Prosper representatives were the most accommodating and reachable. You don’t feel like you are dealing with a cold, unreachable entity. You can sense the humanity behind the big name and they are there to help you. Here are more details about Prosper’s peer-to-peer lending site:

Maximum Loan Amount Available: $35,000

Minimum Loan Amount Available: $2,000

Average Time to Receive Funds (in days): 4 to 10 days

APR: 6.73% to 35.97%

Interest Rate: 6.05% to 31.90%

Term of Loan (years): 3 or 5

Minimum Credit Score Required: 640

Maximum Debt-to-Income Ratio: 30%

Loan Type (Secured or Unsecured): Unsecured loan

Application Affect On Your Credit: None

States Eligible To Borrow From p2p Lending Sites In Question: 47 + DC

Origination Fee: 1% to 5%

Late Fee: Greater of $15 or 5%

Unsuccessful Payment Fee: None

Check Processing: $15

Application Fee Charge: None

Prepayment Penalty Cost: None

Best Method of Contacting Their Support: Phone

#2 Lending Club

Lending Club is an absolute giant in the US peer-to-peer lending space. You really can’t talk about U.S. peer-to-peer lending without mentioning them. Their peer loans platform was founded shortly after Prosper in 2007, they’ve actually surpassed Prosper in the amount of loans funded. Many p2p loan investors feel that Lending Club’s website has the best user interface and it definitely has the largest and most impressive 3rd-party investor ecosystem.

In December of 2014 Lending Club had a wildly successful IPO on the NYSE, becoming the first publicly traded online peer-to-peer lender in US history. If this p2p lending site review was focused on investing, Lending Club would probably have been ranked #1. But getting approved to borrow through Lending Club can be a bit more difficult than with Prosper, knocking them to number #2 on our list from a borrower’s perspective. Here are more details about Lending Club’s peer-to-peer lending site:

Maximum Loan Amount Available: $35,000 ($300,000 for business loans)

Minimum Loan Amount Available: $1,000 ($15,000 for business loans)

Average Time to Receive Funds (in days): 4 to 10 days

APR: 5.99% to 32.99%

Interest Rate: 5.9% to 25.9%

Term of Loan (years): 1, 3 or 5

Minimum Credit Score Required: 660

Maximum Debt-to-Income Ratio: 35%

Loan Type (Secured or Unsecured): Unsecured loan

Application Affect On Your Credit: None

States Eligible To Borrow From p2p Lending Sites In Question:

Origination Fee: 0.99% to 5.99%

Late Fee: Greater of $15 or 5%

Unsuccessful Payment Fee: $15

Check Processing: $15

Application Fee Charge: None

Prepayment Penalty Cost: None

Best Method of Contacting Their Support: Phone

#3 Upstart

If you’ve recently graduated from college, you probably don’t need us to tell you how hard it is to convince a bank to give you a loan. Young people fresh out of college don’t usually have the type of income needed, enough credit history or a high enough credit score to get a reasonable loan rate, if you can get a loan at all.

This is where Upstart steps in. This innovative lending site began facilitating p2p loans in April 2014. They aim to help those who are under-served by traditional loan companies but are filled with potential. Instead of only judging creditworthiness from your credit score, employment history and income, Upstart looks at a wide range of nontraditional factors in order to determine whether you should get a shot at getting your loan funded. These other factors include which college you graduated from, your grade point average and it’s possible that they even take your SAT scores into account.

Upstart prides itself on looking past the cold numbers and saying yes to your requests when other lenders say no. Most of Upstart’s borrowers use the funds as debt consolidation loans in order to pay off high-interest credit cards, but you can use the funds as you please.

This fast-growing p2p lending site is becoming popular among Millennials especially because they are often in a situation where they don’t have a long track record of credit history and are often offered very high loan rates because of it. Taking a bad loan at an early age can easily set your financial life on the wrong road and Upstart realizes that such poor options are not necessary or fair.

Company officials have expressed that the company’s loan products are meant to serve a young and potential-laden population that is very likely to build a solid credit profile in the future, but just hasn’t had the opportunity to do so yet. By using their sophisticated algorithm to decipher key data, the peer-to-peer lending site is able approve the extension of consumer credit at affordable rates to young borrowers who are well-positioned to handle the loans responsibly.
Here are more details about Upstart’s peer-to-peer lending site:

Maximum Loan Amount Available: $35,000

Minimum Loan Amount Available: $3,000

Average Time to Receive Funds (in days): 2 to 16

APR: 5.67% to 29.99%

Interest Rate: 5% to 25.26%

Term of Loan (years): 3

Minimum Credit Score Required: 640

Maximum Debt-to-Income Ratio: 40% to 50%

Loan Type (Secured or Unsecured): Unsecured loan

Application Affect On Your Credit: None

States Eligible To Borrow From p2p Lending Sites In Question: 50

Origination Fee: 1% to 6%

Late Fee: Greater of $15 or 5%

Unsuccessful Payment Fee: $15

Check Processing: $15

Application Fee Charge: None

Prepayment Penalty Cost: None

Best Method of Contacting Their Support: Phone

#4 Funding Circle

Funding Circle is one of the world’s biggest peer-to-peer lending sites that actually focuses primarily on small business loans. They have a US counterpart to their peer to peer lending UK branch. They’ve facilitated more than $1 billion in loans to more than 8,000 businesses in the US and UK combined. Today, 40,000 retail investors (normal people), major banks, financial institutions and even the UK Government are lending to small businesses through the Funding Circle marketplace.

Funding Circle is intensely focused on helping small businesses get loans through their p2p lending site because they have roots in small business. Their U.S. co-founders started the peer-to-peer lending site because they were small business owners themselves, they were getting rejected for small business funding at every turn and after getting rejected for small business loans nearly 100 times, they realized something was very wrong with the traditional bank lending system, it was internally flawed. They saw first hand that even when you have a growing and successful business venture that’s doing well, it’s still far too difficult to get a business loan. From that point forward, they were more determined than ever to build a more sensible small business loan solution for American business owners.

Here are more details about Funding Circle’s peer-to-peer lending site:

Maximum Loan Amount Available: $500,000 for business loans

Minimum Loan Amount Available: $25,000 for business loans

Average Time to Receive Funds (in days): 5 to 14

APR:

Interest Rate: 5.99% to 20.99%

Term of Loan (years): 1 to 5

Minimum Credit Score Required: 620

Maximum Debt-to-Income Ratio: Not Disclosed

Loan Type (Secured or Unsecured): Secured loan

Application Affect On Your Credit: Hard pull on your credit

States Eligible To Borrow From p2p Lending Sites In Question: 47 + DC

Origination Fee: 2.99%

Late Fee: 10%

Unsuccessful Payment Fee: $35

Check Processing: $0

Application Fee Charge: None

Prepayment Penalty Cost: None

Best Method of Contacting Their Support: Phone

#5 Peerform

Peerform was started by Wall Street executives with extensive backgrounds in Finance and Technology in 2010, the peer-to-peer lending site’s creators saw an opportunity to make funding available to borrowers when they noticed that banks seemed unwilling to lend to people and small businesses in need.

Peerform has built a good track record of giving borrowers an opportunity that the banking system had denied them and a very positive experience when seeking unsecured personal loans through an online lending process that is transparent, fast and easy to understand.

To apply for an online peer-to-peer loan from Peerform, you fill out the application on their site and they will make a soft pull on your credit to see if you meet the minimum requirements for a loan. They are one of the few major peer-to-peer lending sites that accepts borrowers with FICO scores as low as 600. Those who qualify for a loan have their loan request posted on the website and it stays active for 14 days while peer-to-peer investors decide if the loan is an attractive investment or not. If your loan is fully funded within the 2 week time period, you’ll be contacted by Peerform to approve and accept the loan. If your loan is not fully funded in the 2 week time period but has raised at least $1,000, you may choose to accept or reject the lesser amount. It is completely your call, you are not obligated to accept the loan. If you do choose to accept the loan, it will be deposited to your bank account within a few business days.

When we tested their customer service and contacted Peerform, we had positive experiences both via email and on the phone. After sending an email we received a written response within 24 hours, and most of our questions were answered to satisfaction. When talking to them by phone, we noted that the company rep was very knowledgeable about the loan process and able to give helpful answers. Their site also provides all of the most important information you’d need to know about their peer-to-peer loan process, including APRs, interest rates, potential loan amounts and fees, etc. You can also contact a customer rep using the live chat option they have on the website. Here are more details about Peerform’s peer-to-peer lending site:

Maximum Loan Amount Available: $25,000

Minimum Loan Amount Available: $1,000

Average Time to Receive Funds (in days): 2 to 16

APR: 7.12% to 28.09%

Interest Rate: 6.4% to 25%

Term of Loan (years): 3

Minimum Credit Score Required: 600

Maximum Debt-to-Income Ratio: Varies

Loan Type (Secured or Unsecured): Unsecured loan

Application Affect On Your Credit: None

States Eligible To Borrow From p2p Lending Sites In Question: 23

Origination Fee: 1% to 5%

Late Fee: Greater of $15 or 5%

Unsuccessful Payment Fee: $15

Check Processing: $15

Application Fee Charge: None

Prepayment Penalty Cost: None

Best Method of Contacting Their Support: Phone

#6 Sofi

Sofi is a highly respected marketplace lending website, with nearly $3 billion in peer loans issued to this date.

They made it onto this peer-to-peer lending sites review because they do a good job at assisting early stage professionals accelerate their success with student loan refinancing, mortgage refinancing, mortgages and unsecured personal loans.

Their nontraditional loan underwriting approach takes into account merit and employment history among other determining factors, in effect, allowing their peer-to-peer lending site to offer loans that often are hard to find elsewhere.

Here are more details about Sofi’s peer-to-peer lending site:

Maximum Loan Amount Available: $100,000

Minimum Loan Amount Available: $5,000

Average Time to Receive Funds (in days): 3

APR: 5.5% to 8.99%

Interest Rate:

Term of Loan (years): 3, 5 or 7

Minimum Credit Score Required: Varies

Maximum Debt-to-Income Ratio: Varies

Loan Type (Secured or Unsecured): Secured loan

Application Affect On Your Credit: None

States Eligible To Borrow From p2p Lending Sites In Question:

Origination Fee: None

Late Fee: Lesser of 4% or $5

Unsuccessful Payment Fee: $15

Check Processing: $15

Application Fee Charge: None

Prepayment Penalty Cost: None

Best Method of Contacting Their Support: Phone

Read more: http://thelendingmag.com/peer-to-peer-lending-sites/#ixzz3en8E6bSg

How a ‘Grexit’ Could Strengthen the Eurozone

Interesting perspective on the Greece situation from Knowledge@Wharton.

The debt crisis in Greece is quickly turning into a Greek tragedy. Banks have closed for a time, ATMs have cash limits and the stock market has not opened. Greece’s bailout expires on June 30, the same day its $1.8 billion debt payment is due to the International Monetary Fund. Greece reportedly will not pay it. Prime Minister Alex Tsipras has called for a July 5 referendum on the latest bailout terms by the IMF, the European Central Bank and the European Commission.

While the situation is dire for the Greeks, Wharton finance professor Jeremy Siegel says the crisis will likely be contained because of freer lending to banks in other countries. And if Greece does exit the European Union, he believes it will strengthen the eurozone. Siegel points to the euro gaining ground even as news of Greek bank closings led to expected declines in the European capital markets — which were to a lesser extent reflected in the U.S. markets as a result of a flight to quality.

As for the impact of the crisis on the Fed’s intention to raise the federal funds rate later this year, Siegel says the U.S. central bank will take the situation in Greece into account if it continues to be a problem months from now. But he does not believe the debt crisis will present enough anxiety for the Fed to derail an increase in the overnight bank lending rate. Siegel expects the rate hike to come in September.

Westpac Takes an Interest in Bitcoin Startup

The Reinventure Group, an Australian-based VC firm focused on fintech, has made a strategic investment in Coinbase. Founded in June of 2012 in San Francisco, California, Coinbase is a bitcoin wallet and platform where merchants and consumers can transact with the new digital currency bitcoin. With a mission to make payments more open and efficient for the world, Coinbase enables the secure purchase and use of bitcoin for more than 2.3 million users internationally, has signed more than 40 thousand merchants and has 7000 developers that have built on its Toshi API platform. Reinventure co-invested alongside Union Square Ventures, Andreessen Horowitz, Ribbit Capital and DFJ Growth as well as the New York Stock Exchange and investing arms of leading bank innovators, BBVA and USAA.

One of Reinventure’s primary objectives is to create opportunities between its portfolio companies and Westpac, Reinventure’s largest investor. They plan to work closely with Reinventure and share insights into the use of digital currencies globally.

Westpac is keen to understand emerging trends, acquire know-how from great entrepreneurs and co-create in areas that can benefit from the complementary skill-sets both parties bring. The Reinventure Fund is operated independently by the managers, Danny Gilligan and Simon Cant, who are also co-investors in the fund. With $50M in committed funds, they have invested in a number of opportunities, including SocietyOne, Nabo, Zetaris and PromisePay.

Capital city dwelling values 9.8% higher over the financial year – CoreLogic RP Data

Based on the CoreLogic RP Data June home value results capital city dwelling values finished the 2014/15 financial year on a strong footing, with dwelling values rising 2.0 per cent over the June quarter and 9.8 per cent higher over the year. The rate of capital gain was slightly higher over the second half of the year (5.1 per cent) compared with the first half (4.5 per cent) highlighting that the housing market has gathered some momentum during 2015. The previous 2013/14 financial year recorded a slightly higher rate of growth at 10.1 per cent.

Since dwelling values started rising in May 2012, Sydney dwellings have seen a 43.1 per cent surge in values and Melbourne values are up by 25.9 per cent. Despite softer market conditions in Perth, dwelling values are currently up 12.8 per cent over the cycle which represents the third highest growth rate across the capitals. Simultaneously, Brisbane’s property market has shown the fourth highest rate of growth at 12.4 per cent, followed by Adelaide (10.4 per cent), Hobart (9.6 per cent), Darwin (8.9 per cent) and Canberra (8.8 per cent).

Looking at the performance of detached housing versus apartments over the financial year, houses are clearly outperforming units in the capital gains stakes. Over the financial year, house values were 10.4 per cent higher across the combined capitals index while unit values increased by a much lower 5.6 per cent. The same trend where houses are showing a higher capital gain than units is evident across each of the capital cities except Hobart and Darwin.

Today’s results confirm a scenario where detached housing outperforming apartments is most evident in Melbourne. Based on the results, Melbourne house values have shown a very strong 11.2 per cent capital gain over the financial year while apartment values are up by only 2.4 per cent.

Gross rental yields drifted another notch lower in June due to dwelling values rising at a faster pace than weekly rents. Currently, the typical gross yield for a capital city house is recorded at 3.5 per cent, which is equivalent to the record low last recorded in 2007. The average gross yield on a capital city unit also fell over the month to reach 4.4 per cent; the lowest gross apartment yield since 2010 and not far off the all-time low of 4.3 per cent recorded in 2007.

Payday Lender Money3 refunds over $100,000 to consumers – ASIC

ASIC announced that Australia’s second-largest listed payday lender, Money3, has stopped offering its two payments ‘fixed fee’ loan arrangement and agreed to refund more than $100,000 to consumers following concerns raised by ASIC that it breached consumer credit laws and engaged in misleading conduct.

Money3’s ‘fixed fee’ loan (also promoted as a ‘LACC’ loan) required only two repayments despite having a term of 16 months. Under the terms of the contract, the first repayment (generally due a week after the loan was taken out) was for a nominal amount, and the much larger second repayment was due 15 months later. This second payment usually accounted for more than 90% of the total amount repaid.

ASIC was concerned that the product was likely to be unsuitable for most of the financially vulnerable customers who obtained it, and in breach of the national responsible lending obligations. Consumers may also have been misled into believing the terms of the loan enabled flexible repayments when the contract in fact disclosed that a large fee could be charged if the consumer asked for a variation of the repayment schedule. ASIC saw examples where the second repayment was as high as 170% of the customer’s Centrelink benefit for that pay period.

Money3 has agreed to finalise outstanding loans and will refund approximately 400 consumers a combined total more than $100,000. These refunds will ensure current consumers have not repaid any monies above the principal amount lent and a cost recovery fee.

ASIC Deputy Chairman Peter Kell said, ‘Small, high cost loans such as this with large one off payments are likely to be of limited benefit to customers who have no savings or savings history as they would be unable to finance the second repayment of the loan without considerable hardship.

‘The difficulties for these vulnerable customers are amplified where there is a large fee where the consumer wants to make any changes to the repayment schedule or amount.’

Money3 has changed the product and its marketing and all LACC contracts now have the repayments spread at even monthly intervals across the 16 months term of the contract.

Consumers are reminded that if they have entered into a credit contract and believe it was unsuitable and suffered a loss or damage they are able to access free internal and external dispute resolution services. Consumers who have previously repaid a LACC loan in full can approach Money3 directly and request a refund similar to what is being offered to current customers.

If a consumer is unable to resolve their complaint directly with the lender via its internal dispute resolution process, they should contact their credit provider’s external dispute resolution scheme, in this case, the Credit and Investments Ombudsman. Consumers may also seek legal advice.

Background

The tighter consumer credit rules for small amount lending included a cap on the fees that can be charged and a strengthening of responsible lending obligations.

For the period Money3 offered the loan, it entered into 24,547 contracts. As at 29 May 2015, 1941 remain on foot.

Strong Dwelling Approvals in May – ABS

According to the latest ABS data, released today, during May 2015, total new dwelling approvals rose by 2.4 per cent to 19,414 in seasonally-adjusted terms, compared with 18,964 in April. An uplift in multi-unit approvals saw a 15.1 per cent rise during May although detached house approvals fell by 8.5 per cent. A total of 218,442 approvals were recorded in the year to May, which is a new record for approvals over any twelve-month period since records began in 1983.

There were significant state variations with seasonally-adjusted new dwelling approvals strongest increase in Victoria (+11.0 per cent), followed by New South Wales (+8.8 per cent) and Queensland (+3.6 per cent). A slight increase was also recorded in Western Australia (+0.2 per cent). New dwelling approvals fell significantly in Tasmania (-32.6 per cent) and in South Australia (-9.9 per cent).

Australian Hedge Funds Snapshot

ASIC today published their report into the Australian Hedge Funds Industry. It draws from aggregated industry data and a survey to September 2014. Hedge funds comprise about 4% of managed funds in Australia, $95bn compared with $2,407bn. Superannuation funds accounted for approximately three-quarters of this total with nearly $1,789 billion in assets. The average Hedge Fund return last year was 4.2% (though with significant variations).There were 473 funds in operation and there are a large number of small funds.

Nearly 80% of the operating single-manager hedge funds and funds of hedge funds were domiciled in Australia. In terms of assets under management, just over 81% of single-manager hedge funds and 99% of funds of hedge funds were domiciled in Australia.

Since 2012, assets under management for funds of hedge funds have remained relatively flat at around $12 billion. This does not mirror the global sector where assets under management for funds of hedge funds have fallen by approximately 17% to US$457 billion over the same period

The majority of the Australian hedge funds sector comprises small-sized funds, with just over half (54%) of the sector holding assets under management of less than $50 million

The most common strategy employed by managers for operating single-manager hedge funds and funds of hedge funds was equity long/short (53.8%), with multi-strategy in second place (10.6%) and fixed income in third place (9.5%).

In the 12 months to 30 September 2014, the average annual net return for single-manager hedge funds and funds of hedge funds was 4.2%. This was down from the previous year when funds on average achieved a return of 14.4%. The third quarter of 2014 was the worst performing quarter for the year for the global hedge funds sector, posting returns of –0.4% for the year. Concerns over Greece leaving the Eurozone during this period caused equity markets to fall, which may have affected hedge fund investments. The year to 30 September 2014 saw returns for hedge funds globally fall to 3.3%, which highlighted the weakness in the sector in 2014 in comparison to the previous year when an average of 7.8% was posted for the same period.

Turning to the survey, Retail direct investors accounted for 17% of the investors by net asset value in the surveyed hedge funds. This is a 7.3% increase from the 9.7% reported in ASIC’s 2012 hedge funds survey.

The vast majority of funds’ reported turnover was in interest rate derivatives and fixed income derivatives. Interest rate derivatives were the most highly traded individual asset class at $510.5 billion, reflecting their importance in managing interest rate exposure.

IMF Confirms Greece is in Arrears and Seeking an Extension

Mr. Gerry Rice, Director of Communications at the International Monetary Fund (IMF), made the following statement June 30th regarding Greece’s financial obligations to the IMF due today:

“I confirm that the SDR 1.2 billion repayment (about EUR 1.5 billion) due by Greece to the IMF today has not been received. We have informed our Executive Board that Greece is now in arrears and can only receive IMF financing once the arrears are cleared.

“I can also confirm that the IMF received a request today from the Greek authorities for an extension of Greece’s repayment obligation that fell due today, which will go to the IMF’s Executive Board in due course.”

Nine things to know about Greece’s IMF debt default

From The Conversation.

Greece is set to miss the deadline on its €1.6 billion loan repayment due to the IMF. The country’s stalemate with its international creditors and the decision to hold a referendum on its bailout offer means Greece will become the first advanced economy to default to the fund in its 71-year history.

Here are nine essential things to know about the default:

1. The long-term damage may yet be minimal. If Greece is only in arrears to the IMF for a short period of time, it may be shown leniency down the line. The IMF’s policy on overdue payments does distinguish between short-term and protracted arrears.

2. This is not yet a full-blown sovereign debt default by Greece. This is still a first for an EU member state, but the IMF is keen to maintain a distinction between a country being “in arrears” and a “default”. This important semantic distinction is also made by major credit rating agencies. It means the consequences for Greece may be temporary and small, if they are able to find a speedy resolution and make the payment.

3. Being in arrears to the IMF is not a new phenomenon. Since 1997, arrears owed to the IMF that were at least six months overdue have ranged from €1.5 billion to €3 billion in any given month. This is not a position any country wants to be in, however. It places Greece in the company of countries whose governments are widely seen as dysfunctional, or even “failed states”. The only countries with IMF repayments at least six months overdue in the past decade have been Somalia, Sudan, Zimbabwe and Liberia.

4. The IMF will not allow any country to access its resources while it remains in arrears. For the IMF to be involved in any future new support package, arrears payments will first need to be settled, without the possibility of rescheduling payments. This makes Greece even more dependent on EU funding to bring liquidity back to its banks – making the outcome of the July 5 referendum even more important.

5. The IMF may now treat Greece even more harshly. It is hard to overstate how seriously the IMF takes the issue of prompt repayment of loans. In the past, countries that have deliberately missed payments have had to make significant moves towards adopting IMF policy preferences in order to regain access to its financial resources. This could include things like meeting stricter spending targets and enacting fundamental tax and pension reforms to gain future access to funds.

6. Greece is the IMF’s biggest-ever debtor. This means the stakes for the IMF are higher here than in other countries. Greece’s €1.6 billion payment would be the largest payment ever missed to the IMF.

Relations between Syriza and the IMF will not be easy going forward. EPA/Julien Warnand

7. Future relations are going to be tricky. It is difficult to see how the IMF could work with the Syriza-led coalition government after this default. There is an intense political dimension to the stalemate with the country’s creditors. The IMF does not like countries playing hardball over loan conditions. It likes populist appeals and inflammatory rhetoric even less. And it is fundamentally opposed to giving favourable deals to governments that violate their obligations to the organisation.

8. Greece’s default is a disaster for the IMF’s credibility. There is no positive spin that can be put on this. The IMF relies on countries making their payment obligations no matter what. This is why so few countries in recent years have gone into protracted arrears with the IMF. Greece’s credibility is already in dire straits, but the IMF has much to lose from its largest debtor “behaving badly”.

The IMF is already under fire from developing countries where Greece is seen as receiving special treatment. Unless the IMF brings the hammer down on Greece now, future borrowers outside of Europe will also delay IMF loan repayments when it is inconvenient.

9. Expect a severe response. If no quick resolution is found after Greece’s referendum on its bailout, the IMF must react strongly to preserve its credibility with other debtors. In the short term, the IMF is likely to step back sharply from seeking a compromise position with Greece. The IMF will insist the government makes key policy changes and meets its scheduled repayments before bailout negotiations can resume.

In the longer term, if Greece remains in arrears, the IMF could take the extreme step of suspending the country’s membership. Even if Greece didn’t need access to IMF resources, being suspended from the organisation would be another first for an advanced economy, and would see Greece’s reputation in the international financial community plummet further. Countries that remain in protracted arrears, such as Zimbabwe, have to complete an informal “staff-monitored programme” of policy conditions without funding as part of the process of normalising relations with the IMF.

Taken together, these nine points highlight the dangerous waters that Greece, the IMF, and the EU have now entered. Regardless of the referendum result, it is difficult to see the IMF cooperating with the government in Greece in the near future. Either fresh elections or a monumental change in policy direction will have to occur for that to happen.

Author: André Broome, Associate Professor of International Political Economy at University of Warwick