Chimchimney
Registered User
- Messages
- 1
Competition. Pure and simple.How do banks set their fixed rates?
The banks all hedge their fixed rates. So they either borrow fixed, or enter a fixed rate swap. They'll have notes in the annual reports about derivatives and hedge accounting if you ever need material to help you sleep...they actually do interest rate swaps to lock in the profit?
I suspect that they don't.
No. It's purely competition that drives pricing. Cost of funds determines minimum pricing, but competition, or lack of, allows margins to be higher.Does that explain any of the bizarre pricing in the market at the moment?
The changed pricing in this case would be BoU having a lower profit on their new lending. So they are just getting a lower profit on the mortgage the customer refixes.If BoI fixed €1 billion for 10 years and lends €1 billion for 10 years.
What happens if the borrowers break out early and pay no penalty because fixed mortgage rates have fallen?
If there's no break fee to customer, it's because BoI can break the swap with no fee. Banks regularly do adjust swaps to be more closely aligned to the assets. If not, they can account for them as hedges and they are effectively running positions in the market.BoI is stuck with its fixed funding.
One banker explained to me that, in effect, all the banks have a source of almost free funding fixed at 0%, i.e. current accounts.
Hi Chim
A very good question.
....
ptsb
Why do they charge existing customers higher fixed rates than new customers?
There are other such anomalies elsewhere.
So the banks set the rates at what they can get away with.
If there were proper competition, I think that the normal relationship between fixed rates and variable rates would return.
......
Brendan
Why don't you switch?PTSB has rediculous rates for their existing customers. May be they just want new businesses and not interested to keep their existing customers. May be they have studied and found that majority of their existing customers cannot switch or move because of various reasons, so they can screw them up as long as long as possible. Does anyone think PTSB will bring down their mortgate rates for existing customers?
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