Soundness of loans can't really be regulated. Everybody who makes loans thinks that they're sound. They just turn out to be wrong sometimes. e.g the mortgages in 2008 we're thought to be solid because they were covered by collateral. But as it turns out that collateral wasn't worth what it was assumed to be.
This is not to say the space shouldn't be regulated, but all regulation on the soundness of loans suffers from this. e.g bank leverage limits rest on the same type of assumptions about the value and liquidity of different types of collateral. And if those assumptions are wrong they will fail no matter how solid the regulatory model says the bank is.
This is not to say the space shouldn't be regulated, but all regulation on the soundness of loans suffers from this. e.g bank leverage limits rest on the same type of assumptions about the value and liquidity of different types of collateral. And if those assumptions are wrong they will fail no matter how solid the regulatory model says the bank is.