Following rumors of a reshuffle of the way in which banks deal with “interest rate risk”, that is to say the impact that a rise or a significant drop in interest rates, representatives of French, German, Belgian and Japanese banks have written to the Basel Committee to defend the current fixed rate mortgage.
A new source of concern for banks
According to the five banking federations, a new approach to fixed rate credit could “jeopardize the ability of banks to grant fixed rate mortgage loans, while this practice was a source of resilience for banks during the last crisis”
In order to defend their interests, the latter have sent a letter to the Basel Committee, which is the place where the main decisions relating to the banking sector are taken.
More specifically, this committee is responsible for strengthening the soundness of the global financial system as well as the effectiveness of control and cooperation among the bodies responsible for banking regulation.
Fixed rate credit review
Even if the work of reflection is still only preliminary, the Committee has expressed its willingness to review the way in which credit rates are drawn up. Which, according to the banks, would lead to a more stringent mortgage system.
More specifically, this would involve setting up a common rule to which all banks would be subject. Specifically, a line that all banks should follow, the latter can no longer assert their own reserves.
According to industry professionals, such a change could have a significant impact on the rate and lead to an increase in the latter.
The Basel Committee has also considered the possibility of relaunching variable rate mortgage, where the risk of interest rate variation is borne by the borrower.
A source of concern for the main banking federations, the announcement of such a modification did not go unnoticed. Indeed, in a context of stagnation in the real estate sector, the relatively low borrowing rates is the only source pushing taxpayers to invest. Still in the reflection stage, taxpayers have a few months left to borrow at relatively low rates, even if it could not last.