I'd be curious to hear @patio11's thoughts on how much the prevalence of fixed rate loans in America influences the high rate of bank failures. IIRC the USA is one of only a few developed countries to have this system (Germany is another but the housing market there is much more rental based). Most others have variable rates, so banks simply raise the rates when interest rates go up. This has other consequences, specifically for consumer ability to service those loans, but it does help stop banks from going under. To the extent there were problems in the UK and Australia for example, they were largely fixed by regulatory changes after the GFC.
I think youre slightly underestimating the prevalence of fixed term loans. While 30 years is most common to the US and nordics there are lot in the 5-10 year range globally. I vaguely recall something like 30-50% of loans being this type of fixed range globally.
Can you explain more about why fixed terms are related to bank failures? IME very very few loans are held by the issuing bank. Almost all are resold, bundled & securitized, and then resold again as long term debt. Im missing why the bank would care that someone defaults later on. Its
It’s kind of the entire thesis of the piece that marking to market of fixed rate loans in a rising interest rate environment is what made First Republic insolvent. So you should ask @patio11 that question not me.
Fixed interest rate loans do exist elsewhere but they tend to be fixed for a fairly short period relative to loan duration, and constitute a much smaller part of the book, so between the two effects you might be looking at an order of magnitude of difference between US banks and say Australian banks in terms of interest rate exposure.
And then there’s the bit where the US simply opted all its banks except the big 4 out of Basel III regulation, which is why First Republic could exist in the first place, and only exist in the US.
