You are slightly confusing the issues at hand here. Most of the write-downs banks were doing were related to mortgage trading they were doing, not mortgage iss

You are slightly confusing the issues at hand here. Most of the write-downs banks were doing were related to mortgage trading they were doing, not mortgage issuing. There was not _that_ many banks involved in the sub-prime business and losing a lot directly. Banks are quite well hedged against interest rate flux fundamentally ...since they make prime + x on loans, and pay out prime - x on balances.