This is a great rule of thumb: "a 1% increase in prevailing interest rates decreases the value of the loan by approximately 1% per year of duration".<p>Especially good to keep in mind for borrowers who are trying to negotiate payoff amounts for fixed term loans. A 5% interest rate increase means you can potentially negotiate a loan payoff for significantly less than you owe for loans that have multiple years remaining. Has anyone been successful at this for consumer loans recently?
> So I had a brief negotiation with First Republic, where I asked for (and got) a $100,000 credit line “for cash management purposes.” My recollection is that this took less than two hours total, inclusive of time to write the loan application.<p>Fascinating look at a world that I just kind of assumed was only for the ultra-wealthy. Who knew one could simply stroll into a bank, and two hours later and a couple of signatures and handshakes, simply walk out with a $100K <i>unsecured</i> line of credit! Mind blown. I always just assumed that you had to show $millions in net worth or be some kind of Investment Banking super-partner to the bank in order to get such generous treatment. Or at least secure the credit with <i>something</i>. Wow.
> The fundamental purpose of bank loans is to enable measured private risk-taking by leveraging a small amount of bank equity (from risk-taking investors) with a larger amount of risk-adverse deposits. Sometimes the risks are opening a restaurant or buying an apartment building in an up-and-coming neighborhood; here the risk was a crash project to build charitable medical infrastructure during a crisis.<p>This is central to the author’s defence of the social importance of banks. And if only it were true, banks really don’t finance small businesses in a meaningful way anymore. At least not in the UK.
Matt Levine (Bloomberg) has discussed recently, how it is not entirely out of the question that the basic idea of any bank "investing long-term" (i.e. loans, T-bills, etc.) with the money from short-term deposits, might be dying. The deposit money is far, far easier to pull out now, and since bank-runs are self-fulfilling prophecies...
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'm interested "the metaphysics" of credit emission<p>too bad this is not publicly permitted, I fear this stuff only gets discussed in private (occulted) societies and 'back rooms' (or private lounges) with lots of wooden furniture (I imagine)<p>when somebody emits a credit for somebody else, they've set a requirement for the future, this has consequences that ain't so simple; and what's worse, that are all taboo to discuss with 'randos' (outsiders of any sort)