“The ECB wants to force the French to borrow at variable rates from 2023!! “. Editors of Charles SANNAT

My dear impudent ones, dear impudent ones,

As you know, in this world of variable rates in which we evolve, there is a small village that 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 whenever rates rise and ultimately financial crises, as banks are inevitably weakened by the number of bankrupt borrowers that increase in these cases.

This is exactly how US banks rocked during the Subprime crisis between 2007 and 2010 and how Lehman Brothers collapsed in a massive crash that reverberated around the world.

Still, still…

The ECB is pushing for the introduction of variable rates in France

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

“A policy that goes against French banking tradition and raises many concerns among French financial professionals. France distinguishes itself from most European countries by the precedence of fixed interest rates when it comes to purchasing real estate. A habit that can be dangerous for banks when interest rates rise, but they still stick to this particularity. However, in a difficult economic context, the European Central Bank (ECB) is pushing for the introduction of variable rates in France.

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

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

According to the ECB, to facilitate access to credit and to enable loans to the poorest and most vulnerable, it is necessary to switch to variable rates. This reasoning is astonishing since everyone knows and has understood that the more vulnerable one is, the lower the income and the greater the risk of unemployment and the greater the sensitivity to rising interest rates of the household concerned. It is again precisely the story of the Subprime crisis where African-American households, statistically the most vulnerable, were hit hard by the wave of personal bankruptcy and especially first, before the rest of the population ceases to follow suit in a big way.

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

The problem is that French banks have been granted a “transitional regime” until 2023, an exception the ECB has no intention of extending.

But 2023 is tomorrow.

“We are trying to plead our case with Bercy, to alert the regulator, but we are struggling to be heard. If the noose becomes too tight, we will one day be forced to let go of our model,” warns a bank manager.

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

Technically, variable interest rates transfer interest rate risk… to borrowers, a choice that is beneficial to banks but could prove dangerous to the stability of the financial system. While they do offer a number of benefits, floating rate loans can jeopardize borrowers’ solvency in a rapid rise in interest rates, as is currently the case. And if the borrowers go bust, the banks go bust too.

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

The worst part is that the ECB wants to force the French to switch to variable interest rates when interest rates rise.

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

The ECB cannot say it did not know.

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

Get ready!

Charles SANNAT

“Insolentiae” means “insolence” in Latin
To write me charles@insolentiae.com
To write my wife helene@insolentiae.com

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