Greensill

Greensill Capital collapsed in March 2021 due to a combination of factors, including allegations of fraudulent activities, the exposure of high-risk investments, and a sudden stop of funding from its key financial backer, Credit Suisse.

The collapse of Greensill Capital raised questions about the due diligence and risk management practices of both the firm and its financial backers, as well as about the broader supply chain finance industry.

It was revealed that Greensill had been providing financing to companies based on invoices for goods and services that had not yet been delivered or paid for, which raised concerns about the quality of its assets and its ability to repay its debts.

Instead of being based on an invoice for a specific purchase, they are based on an expectation that some future invoice may be issued

• Regulators

• Deposit Insurers

• Rating Agencies

• Financiers

• Insurance Companies

• Corporates

• stronger and clear regulation for non-banking segment

• Increased transparency in the supply chain finance industry to better understand and monitor the risks

• Proactive and faster investigations

• Showed limitations as they only cover depositors and not bondholders

• Should consider expanding their coverage to include other types of investors

• Rating agencies failed to fully understand the complexity of the supply chain finance industry

• Improving their risk assessment

• More independent ratings

• Increase Transparancy

• Diversify Clients

• Need for more thorough due diligence

• Understanding all the risks they are covering

• Reviewing and adjusting their risk management

• Transparency

• Consider the risks involved and financial condition of their financing partners

• Diversifiying their financing sources

• Short-term financing for short-term needs

1. Inadequate oversight as regulators failed

2. Regulatory arbitrage - GC took advantage of loopholes and operated as an unregulated firm allowing them to engage in risky practices

3. Weak risk management - did not properly assess creditworthiness

1. rating agencies gave them a investment grade rating

A special purpose vehicle is a subsidiary created by a parent company to isolate financial risk.

Purpose:

1. Risk mitigation

2. Securitization of loans/receivables

3. easily transfer nontransferable assets

4. hold companies key properties.