The era of cheap money, except for cheap or even negative money interest ratescame to an end since last year in most countries of the world, but above all in the largest economies USAher EUROPEAN UNION. And her Britannia. And theoretically, the end of this era would be good news for banks, who could increase their profitability again by raising lending rates more than deposit rates and using the difference.

In practice, however, it turns out that higher interest rates work like a kind of x-ray, revealing the problems of each bank, its weaknesses and pockets of risk. The recent collapse of three US regional banks with its prominent Bank of Silicon Valley to some extent it was interest from high interest rates. He outlined the risks for banks, which traditionally hold large volumes of government bonds in their portfolios and suffer from a fall in their value when borrowing costs rise.

As the Financial Times detailed report says, many banks, especially European ones, have accumulated a large amount of fixed-rate loans in their portfolios that they cannot change.

This means that the opportunities to increase their profitability are greatly reduced, and the only benefit is that fixed interest rates greatly reduce the risk of a wave of bad loans. Other banks have a large volume of loans with floating interest rates, which gives them the opportunity to increase them. At the same time, however, the risk of non-performing of more and more loans is increasing, although, according to the latest data in the EU, the percentage of non-performing loans remains at a low level. According to September data, only 1.5% of all home loans in the EU. were characterized as bad loans.

However, her data ECB show that fixed rate mortgages still account for about 75% of total loans in the EU.

US banks could lose up to $620.4 billion due to the fall in the value of the bonds they hold.

In the US, the Federal Deposit Insurance Corporation estimates that floating-rate mortgages account for only 10% of all mortgages.

At the same time, American banks have already suffered, as the value of bonds held in their portfolios has fallen. According to a recent estimate by the Federal Reserve, US banks could lose $620.4 billion due to the decline in the value of the securities they hold in their portfolios. Among those losses, $340.9 billion came from bonds that banks do not plan to sell.

The problem arises, of course, when the bank does not have sufficient liquidity to cover the withdrawals from its customers, as happened, for example, in the case of the Silicon Valley bank, in which case it is forced to resort to selling the securities that it holds in its portfolio and which he did not plan to sell.

If this occurs when the value of securities has declined, in this case due to rising interest rates, then the bank is fixing losses and inspires anxiety among investors and depositors. Usually, in such cases, a fall in bank shares and a panicky mass takeover follow. This is exactly what happened in the case of Silicon Valley Bank. Something like this, of course, could be caused by rumors about the financial situation of the bank, which could also lead to a fall in its shares and a run on deposits.

The risk of massive withdrawals, which could bring the bank to its knees, may also come from other factors related to the psychology of depositors, as well as in combination with higher interest rates. That is, if banks are slow to raise deposit rates significantly while central banks have raised key rates, savers may be looking for higher returns elsewhere, such as in cryptocurrencies. Banks then risk losing most of their deposits and liquidity. At the same time, rising interest rates could make it harder for businesses with bad credit to repay their debts and increase bad debt rates. According to S&P estimates, NPL rates will reach 3.75% in the US and 3.25% in Europe by September.