How Do Banks and Households Manage Interest Rate Risk? Evidence from the Swiss Mortgage Market

Arbeitspapier

We exploit a unique data set that features both un-intermediated mortgage requests and independent offers from multiple banks for each request. We show that households typically are not prudent risk managers but prioritize the minimization of current mortgage payments over the risk of possible hikes in future mortgage payments. We also provide evidence that banks do influence the contracted mortgage rate fixation periods, trading off their own exposure to interest rate risk against the borrowers’ affordability and credit risk. Our results challenge the implicit assumption of the existing mortgage choice literature whereby fixation periods are determined entirely by households.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 6649

Classification and Topics

• Classification: Wirtschaft ; Consumer Economics: Empirical Analysis ; Interest Rates: Determination, Term Structure, and Effects ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: Fixed-Rate Mortgage (FRM) ; Adjustable-Rate Mortgage (ARM) ; fixation period ; maturity mismatch ; interest rate risk ; credit risk ; duration

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Basten, Christoph ; Guin, Benjamin ; Koch, Cathérine Tahmee
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/171113
• Last update: 10.03.2025, 11:43 AM CET