“The ECB wants to force the French to borrow at variable rates from 2023!! “. Editorial by Charles SANNAT – Insolentiae

My dear impertinents, dear impertinents,

As you know, there is in this world of variable rates in which we evolve, a small village which still and always resists the banking legions.

Surrounded by entrenched camps of bankers, the small Gallic village resists and continues to operate with fixed rate loans.

Fixed rates make it possible to avoid waves of insolvency each time rates rise and ultimately financial crises because banks inevitably find themselves weakened by the number of bankrupt borrowers which increases in these cases.

This is exactly how American banks rocked very widely during the Subprime crisis between 2007 and 2010 and how Lehman Brothers collapsed in a huge crash that resonated around the world.

Yet, yet…

The ECB pushes for the adoption of variable rates in France

The ECB wants to generalize the use of variable rates to finance mortgages, reports Capital magazine.

“A policy which goes against the French banking tradition and which arouses many reservations from French finance professionals. France differs from most European countries by the pre-eminence of fixed interest rates when it comes to real estate purchases. A habit that can be dangerous for banks in the event of a rise in rates, but the latter nevertheless hold to this particularity. However, in a difficult economic context, the European Central Bank (ECB) is pushing for the adoption of variable rates in France.

And sometimes you have to pinch yourself to believe that what you hear is true.

“Variable rates offer the advantage of being more accessible to households with limited income. Thus, the ECB would like to generalize their use in France in order to facilitate access to mortgages”.

To facilitate access to credit according to the ECB and allow lending to the poorest and most vulnerable, it is necessary to switch to variable rates. This reasoning is astounding as everyone knows and has understood that the more fragile one is, the lower the income and the higher the risk of unemployment and the higher the sensitivity to rising interest rates of the household concerned. It is once again exactly the story of the Subprime crisis where African-American households, statistically the most fragile, were hit hard by the wave of personal bankruptcy and especially first, before the rest of the population no longer widely follows.

And for once, I can only share the analysis of the French Banking Federation (FBF) which indicates that “these rates vary according to the economic situation and inflation. They can endanger individuals in the event of a meteoric increase and lead to a wave of loan defaults. It is not our French model, unique and protective, ”judges an official of the FBF interviewed by Le Parisien.

The problem is that French banks have obtained the granting of a “transitional regime” until 2023, an exception that the ECB does not intend to extend.

But 2023 is tomorrow.

“We are trying to plead our case with Bercy, to warn the regulator, but we are struggling to be heard. If the noose tightens too much, we will one day be forced to let go of our model”, warns a banking establishment manager.

Technically in a system of fixed rates like ours, French banks take the risk during the phases of rising rates where they lose a little money and they gain more when the rates fall. In any case, the French banks have never been in difficulty because of the fixed rate loans granted to their customers.

Technically, variable rates transfer the interest rate risk… to borrowers, a choice that is beneficial for banks, but which can turn out to be dangerous for the stability of the financial system. While they do indeed confer a number of advantages, variable-rate loans can endanger the solvency of borrowers in the event of a rapid rise in interest rates, as is currently the case. And when the borrowers go bankrupt the banks also go bankrupt.

This is once again exactly the story of the Subprime crisis, a story whose lessons do not seem to have been learned at all by the ideologues of the ECB.

The worst thing is that the ECB wants to force the French to switch to variable rates at the very moment when rates are rising.

A financial madness whose consequences we know in advance. The collapse of the banking system as the creditworthiness of borrowers collapses.

The ECB cannot say that it did not know.

It is already too late, but all is not lost.

Prepare yourselves !

Charles SANNAT

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