Why are some banks at risk for having large portfolios of low interest rate mortgages?
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If a bank holds a bunch of 3% mortgages and rates are 3% they can sell those mortgages for full face value and make more loans and create more fees, and move cash around.
If a depositor comes to the bank and asks for 2 million dollars to go buy a yacht the bank can sell 2 million in mortgages and give them cash easily.
If rates go to 6% the 3% mortgages are hard to sell. You have to offer steep discounts to entice a buyer to take on those very low rate loans. If someone comes in the bank and asks for 2 million in cash to go buy a yacht the bank has to sell 2.5 million in old mortgages to get the 2 million for the yacht. The bank loses half a million dollars.
If the yacht guy realizes the bank had a hard time getting him the money he tells all his friends the bank seems shaky. Everyone wants their money back from the shaky bank and the bank piles up huge losses trying to give people their cash back.
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