“The European Central Bank wants to force the French to borrow at variable rates from 2023!!”. Editorial Charles Sennett – Insolentiae

Dear shameless people, Dear shameless people,

As you know, in this world there are variable rates at which we evolve, a small village still always resisting the banking hordes.

Surrounded by well-established bankers’ camps, the small Gallic village resists and continues to operate with fixed-rate loans.

Fixed rates make it possible to avoid waves of bankruptcies every time prices rise and eventually financial crises because banks inevitably find themselves weaker than the number of bankrupt borrowers that increases in these cases.

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

However, after…

The European Central Bank is pushing for floating rates in France

The European Central Bank wants to mainstream the use of variable rates for financing mortgages, Capital magazine reports.

A policy that runs counter to French banking traditions and raises many reservations by French financial professionals. France differs from most European countries in its superiority of fixed interest rates when it comes to buying real estate. Usually it can be dangerous for banks in case of high interest rates, but the latter nonetheless adhere to this feature. However, in a difficult economic context, the European Central Bank (ECB) is pushing for the adoption of variable rates in France.

Sometimes you have to push yourself to believe what you’re hearing is true.

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

To facilitate access to credit according to the European Central Bank and to allow lending to the poorest and most vulnerable, it is necessary to switch to variable rates. This logic is astonishing as everyone knows and understands that the more vulnerable a person is, the lower the income, the greater the risk of unemployment and the greater the sensitivity to higher interest rates of the household concerned. It is again exactly the story of the mortgage crisis in which African American families, statistically the most vulnerable, were hit hardest by the wave of personal bankruptcies, especially first, before the rest of the population stopped following it on a massive scale.

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

The problem is that French banks have been granted 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 Percy, to warn the regulator, but we are fighting to be heard. If you tighten the screws too much, one day we will have to abandon our model,” warns the director of a banking institution.

Technically, in a fixed interest rate system like ours, French banks take risks during phases of rising rates where they lose a little money and earn more when rates fall. In any case, the French banks were not in any trouble for the fixed-interest loans granted to their customers.

Technically, changing rates transfer interest rate risk…to borrowers, which is a beneficial option for banks, but potentially dangerous to the stability of the financial system. While they do confer a number of benefits, variable rate loans can jeopardize the solvency of borrowers in the event of a rapid rise in interest rates, as is currently the case. And when borrowers go bankrupt, banks go bankrupt too.

Again, this is exactly the story of the subprime crisis, a story whose lessons never seem to have been learned by the ECB’s ideologues.

The worst thing is that the European Central Bank wants to force the French to switch to floating rates at the very moment that prices go up.

Financial madness, the consequences of which we know in advance. The collapse of the banking system with the collapse of the creditworthiness of borrowers.

The ECB cannot say it does not know.

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

get ready !

Charles Snat

“Insolentiae” means “insolence” in Latin
Write to me charles@insolentiae.com
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https://www.capital.fr/economie-politique/credit-immobilier-la-bce-pousse-a-ladoption-des-taux-variables-en-france-1452734