A rapid increase in interest rates would drive up short-term funding costs and hit particularly those financial institutions that have invested into low rate, fixed term assets.
In Germany, for instance, 44% of housing loans are fixed-rate mortgages with a maturity of more than ten years, this number being up from 26% at the beginning of 2010.3 An abrupt increase in interest rates would put pressure on banks – their funding costs would go up, and their interest income would, initially, rise at a slower pace.