New Irish mortgage rates are now materially above the EU average

Sarenco said:
Will the Central Bank now intervene?
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To do what?

The CBI has a general consumer protection mandate involving making sure customers are made aware of terms and conditions, are treated fairly, etc.

The CBI cannot set retail interest rates. It does not have antitrust powers.

Consumers are free to take their business to any bank in the euro area that will have them and are protected by a DGS like in Ireland. Lots of people are already doing this.
 
NoRegretsCoyote said:
To do what?
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To require banks to justify their exceptionally low deposit rates.

In other words, to enforce the Consumer Protection Code requirement that a bank acts "in the best interests of its consumers and the integrity of the market".

The FCA has already called UK banks to task for being slow in passing on BOE rate increases to customers.
 
Sarenco

Did you mean to say "now materially above..." or "not materially above..."?

I don't think that they are materially above.

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0.2% is not material in my opinion.

And we are below the median rate:

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Sarenco said:
In other words, to enforce the Consumer Protection Code requirement that a bank acts "in the best interests of its consumers and the integrity of the market".
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So vague as to be meaningless. To turn it on its head ten years ago the story was that unprofitable banks wouldn’t lend to viable personal borrowers. Today’s profitable banks aren’t rationing credit which surely benefits consumers, albeit borrowers not savers.
Sarenco said:
The FCA has already called UK banks to task for being slow in passing on BOE rate increases to customers.
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Different jurisdiction, different regulatory framework.
 
I have campaigned on mortgage rates - I do think that the banks should be stopped from discriminating between new and existing borrowers and from tricking borrowers with gimmicks such as cash back. And mortgages are complicated so it's easy for banks to exploit ignorance or inertia.
Also, a borrower can't simply shop around and get a mortgage in Malta at 2%.

But I have little sympathy for someone getting 0% on €100k in an AIB demand deposit account when it's so easy to get more in an account in another eurozone country.

Brendan
 
Brendan Burgess said:
I don't think that they are materially above.
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The average new business mortgage rate was 25bps higher than the EU average in June. 25bps is material in this context.

But the point is that our banks can no longer justify offering lower than average deposit rates on the basis that they offer lower than average mortgage rates.
Brendan Burgess said:
But I have little sympathy for someone getting 0% on €100k in an AIB demand deposit account when it's so easy to get more in an account in another eurozone country.
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It's really not that easy - look at all the complaints on here about Raisin customer service. We had reports of posters that tried to open accounts and eventually gave up in frustration

Are we really expecting Irish depositors to trust an online platform that facilitates making deposits in minor banks they have never heard of in Latvia, etc?
 
Sarenco said:
But the point is that our banks can no longer justify offering lower than average deposit rates on the basis that they offer lower than average mortgage rates.
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I agree that it's worth highlighting that the gap between mortgage rates and deposit rates in Ireland is higher than anywhere else (I assume it is?)

But I would not be taking action on deposit rates.

Mortgage holders need much more protection than depositors.
  1. They are generally poorer
  2. It's a more complex product with plenty of people trying to trick them into a more expensive product
  3. It's more difficult and more expensive to switch

But as pensioners form a bigger proportion of the big deposit holders, the government or Central Bank may take action.

The taxpayer has done very little for mortgage holders, yet we bailed out the depositors when banks collapsed.

Brendan
 
Agree with @Brendan Burgess I think there are limits to how much of a nanny state you should look for.

Brendan's proposals are about transparency & discrimination.....crossing the rubicon on pricing / bank windfall taxes etc. is a dangerous game.

The state's job is to be a referee....not a player in the market.........set transparency rules such that it allows easy comparison across institutions and remove barriers to mortgage switching. If super-normal profits emerge in the Irish mortgage market it wont be long before they are noticed and taken away via increased competition.

If you want 'lock-in' BOI & AIB's oligopoly here then just go ahead and start interfering in the pricing of product or arbitrarily taxing bank profits - not a single foreign institution would voluntarily walk into a lion's den like that & so the unintended consequence of such interference would be to reduce competition while creating a political football for future politicians to play with it.
 
Sarenco said:
But the point is that our banks can no longer justify offering lower than average deposit rates on the basis that they offer lower than average mortgage rates.
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What you’re describing is a building society business model from 1977. It no longer exists.

Banks today have other funding sources than household deposits and many other revenue streams apart from mortgage lending.
 
NoRegretsCoyote said:
Banks today have other funding sources than household deposits and many other revenue streams apart from mortgage lending.
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Did anybody say otherwise?

Deposits are still the main (not sole) source of funding for Irish banks and depositors are getting screwed while the banks are making obscene profits.
 
Sarenco said:
Did anybody say otherwise?
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You implied as much!

Sarenco said:
Deposits are still the main (not sole) source of funding for Irish banks and depositors are getting screwed while the banks are making obscene profits.
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Banks made obscene losses 2008-2011 and depositors did alright. Swings and roundabouts.

A profitable banking sector is far likelier to support the real economy and develop new products for customers.
 
letitroll said:
Agree with @Brendan Burgess I think there are limits to how much of a nanny state you should look for.

Brendan's proposals are about transparency & discrimination.....crossing the rubicon on pricing / bank windfall taxes etc. is a dangerous game.

The state's job is to be a referee....not a player in the market.........set transparency rules such that it allows easy comparison across institutions and remove barriers to mortgage switching. If super-normal profits emerge in the Irish mortgage market it wont be long before they are noticed and taken away via increased competition.

If you want 'lock-in' BOI & AIB's oligopoly here then just go ahead and start interfering in the pricing of product or arbitrarily taxing bank profits - not a single foreign institution would voluntarily walk into a lion's den like that & so the unintended consequence of such interference would be to reduce competition while creating a political football for future politicians to play with it.
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Excellent post I think this captures the key points on why interference in the banking sector is a dangerous affair.

Specifically on the deposit market and the call for consumer protection. Firstly, let's not confuse consumer protection with what the consumer wants in the short term - they can be very different things. Secondly, as we move from a low interest rate regime it feels very similar to where we were in the utilities market a decade or so ago.

Deregulation lead to an open market but with dominant agents in both the gas and electricity sectors. The Commission for Energy Regulation did take a policy stance and directly regulated the prices of the dominant agents. It kept the prices of the ESB and Bord Gais artificially high to encourage competition.

Applying the same logic to the deposit market, if there's a policy action to be taken it's to keep deposit rates low not to raise them.

Sarenco said:
Are we really expecting Irish depositors to trust an online platform that facilitates making deposits in minor banks they have never heard of in Latvia, etc?
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Is this not what the single market is all about? As long the protections/regulations are the same as they would be in Ireland - which they broadly appear to be - then why not.

This is where our consumer protection/information element is really lacking and where action should be taken. We should be doing more to inform the masses of what options are available outside those with a bricks and mortar presence here. The best buys section of AAM is vastly superior to anything the Competition Authority had on it's own website.
 
Banks don't need to attract deposits at the moment. They already have too much cash. Not sure they will be rewarding depositors any time soon without political intervention, and not sure we want the impacts that flow from that type of intervention.
 
skrooge said:
The Commission for Energy Regulation did take a policy stance and directly regulated the prices of the dominant agents. It kept the prices of the ESB and Bord Gais artificially high to encourage competition.

Applying the same logic to the deposit market, if there's a policy action to be taken it's to keep deposit rates low not to raise them.
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Excellent point - paradoxically however in the current banking market.......I would suggest that to actually get new deposit & loan players into the market what is actually required is something only a politician on LSD would go for........mandated and enforced higher mortgage/loan rates applied to AIB/BOI.......which would allow a competitor to enter.

See BOI/AIB have these outrageously robust deposit franchises in my opinion.......I just dont see anybody, right now, really competing with them at scale for deposits at the same price.....as such then BOI/AIB's funding costs are kind of unbeatable. BOI/AIB know this.....from what I can see both could, if they wished based on deposit beta and loan volumes/market share, expand their NIMs i.e. charge more for loans......they have shown lots of restraint here......this restraint isnt coming from kindness per se (although for a bunch of other reasons I think its the best outcome for Ireland Inc. right now).....BOI/AIB learned their lesson in the mid-2000's........widening your NIMs too far is a battle cry for competitors to come into your duopoly market.

Game theory for BOI & AIB is to collude through press releases around a strategy to "protect borrowers"....code for keeping their NIM tight & light.....doing so shuts out entrants. If nobody can beat your cost of funds......don't create a landing strip for competitors between your cost of funds and loan rates. Its an added bonus that keeping mortgage rates low-ish is very good PR.

The only way to unlock things potentially - as per your CER example would actually be to mandate AIB/BOI to have a NIM on new loans (not excess deposits at ECB but loans) of perhaps 4%!.......in doing you've solved two problems.....an institution with higher funding costs than AIB/BOI (basically everybody) has a chance to step in to provide competitive profitable high RoE loans while also potentially paying higher deposit rates.

Never going to happen - and so I expect AIB/BOI to keep a very tight lid on rates moving forward....its the mechanism by which they lock the door on the Irish market to new entrants - as I said above....given the housing crisis.......anything that can keep mortgage rates low here such that scaling our home building capabilities isn't hampered in anyway is a good thing.

A country like Ireland with our excess savings & household wealth should not be suffering from infrastructure deficiencies like we have......like them or loath them........AIB BOI are not the heroes we'd like.......but right here, right now.....if they take their deposit dupoly and keep providing 4 - 4.5!!!! SVR 30yr mortgages when the ECB is paying 4%+.....then in some respects its not something I'd mess with as a politician in a housing crisis......for now the politicians, the Irish people and the pillar banks are frenemies.....the only constituents out in the cold are the boomers.....the 30yrs of capital gains embedded in their well situated 4-bed houses should suffice in making them feel not so bad about losing a few shekels in deposit interest.
 
I suspect it's a temporary market thing.

The ECB rate will fall and things will normalise.

Otherwise a foreign deposit taker might enter the market - pay 2% , and put in on overnight with the ECB at 3.75%.

Brendan
 
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