What took down SVB was mortgage securities. In the USA mortgages are typically 30 years long, with a fixed rate the entire time. Actual average duration is only a few years in a declining rate environment and 5-6 years in flat rate environment. In a raising rate environment, which we haven’t really seen for any length of time in most people adult lifetimes, it’s probably 10-15 years. This transition is what harmed SVB and it’s hurt all the banks but most didn’t leverage up so much on them and didn’t have only large, flighty customers. Very unique situation. There are also lots of ways big banks can protect themselves from this duration risk, if they actually care.It sounds like in Australia (and Canada and the UK) the risk has just been shifted from the professionals to the consumers, with only five year mortgages. You can’t pay off your entire house in five years, so many people are dependent on being able to refinance, and are going to be in a lot of hurt over the next few years as the mortgages come due. This does not sound like a better solution.
kondro|3 years ago
30 year mortgages here aren't uncommon, but the rates are variable and are basically whatever their bank wants to charge (with competition from other banks preventing them from increasing ridiculously).
Loan affordability is a big thing here too with banks being mandated to ensure that borrowers can afford the mortgages they're receiving and even shading interest rates at 3 points above their current levels when assessing this.
Sub-prime mortgages are effectively non-existent here as are long-term interest rate risks for banks as their borrowing costs are always pretty closely aligned with their lending revenues.