Very disappointing response from Michael Noonan

[Brendan Burgess]

This question was answered in the Dáil today


To ask the Minister for Finance the way he can justify allowing Permanent TSB to charge its home loan customers a standard variable rate of 6% while the two other State owned banks, ESB and AIB charge 4.8% and 3% respectively, and while acknowledging that it is not the normal role of the Minister to interfere with the setting of interest rates, it is noted that a precedent has been set when he persuaded the AIB to reduce their SVR and if he will do the same with PTSB; and if he will make a statement on the matter.

- Kevin Humphreys.​

* For WRITTEN answer on Thursday, 8th December, 2011.
Ref No: 39299/11

REPLY​

Minister for Finance ( Mr Noonan) : Neither the Central Bank nor I, as Minister for Finance, have a statutory role in the setting of interest rates charged or paid by financial institutions regulated by the Central Bank. However, I can confirm to the Deputy that Permanent TSB did pass on, in full, the recent reduction to customers holding standard variable rate mortgages.

Ultimately the pricing of financial products, including standard variable mortgage interest rates, is a commercial decision for the management team and board of each bank, having due regard to their customers and the impact on profitability, particularly where the cost of funding to each bank, including deposit pricing, is under pressure.

In his recent letter to the Taoiseach, the Deputy Governor of the Central Bank stated that the Central Bank was not requesting the power to have regulatory control over the setting of retail interest rates. He indicated that the experience of such controls in the past, and in other countries, did not encourage the Central Bank to believe that such a regime would be advantageous in net terms as the banking system recovers its normal functioning. Binding controls tend to reduce availability of credit and channel it to the most creditworthy customers, starving smaller and less secure customers from credit. This could have an adverse effect on sound competition in the market. The Deputy Governor mentioned also that, within its existing powers and through the use of suasion, the Central Bank will engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds.

 

[newirishman]

Disappointing in what sense?
To be honest, I don't want the government or Central Bank mess around with retail interest rates either.

 

[RIAD_BSC]

He ignores the fact that he was happy to interfere when it came to AIB. If he won't interfere with the rates, then he should force the bank to publish info on its cost of funds, on a per mortgage basis. Then people could see whether or not the rates were justified for themselves.

 

[Brendan Burgess]

Hi newirishman

Nor do I, in principle.

But it makes no sense that one state institution is charging 5.3% while another is charging 3%.

It is also completely hypocritical given that they put huge pressure on AIB to reduce the rates to 3% and then he goes on to say

Neither the Central Bank nor I, as Minister for Finance, have a statutory role in the setting of interest rates charged or paid by financial institutions regulated by the Central Bank.

He is the shareholder and he can direct his directors to charge appropriate rates and not to act as predatory lenders in a market which is not functioning normally.

Brendan

 

[newirishman]

Fair enough, understand. I was not aware that AIB was put under such pressure. Thanks guys for the additional info, explains it better.

 

[marksa]

ok - so are we promoting anti - competitive, monopolistic banking here? Or is the real answer to just turn the "pillar" banks into Fannie Mae/ Freddie Mac type institutions of the state providing mortgage finance?

 

[Brendan Burgess]

ok - so are we promoting anti - competitive, monopolistic banking here?

Eh, no?

We have a market which is no longer competitive, so the normal rules do not apply. The people who have PTSB mortgages are at the mercy of PTSB. They are often in negative equity and there is no market for switchers anyway.

In general, the state should protect its citizens from predatory lending and in particular the state should preotect its citizens from predatory lending by a state owned bank.

 

[Time]

He has given the exact same word for word answer before to letters written to him on the matter.

 

[thedaras]

I Heard that Elderfield was applying behind the scenes pressure though,hence the PTSB.71% decrease..

 

[Brendan Burgess]

According to the Irish Times [broken link removed]

Mr Gilmore said the Government would if necessary call in the banks if they failed to pass on the cut announced yesterday by the Central Bank’s governing council.
He insisted the Government would act “decisively, forcefully and effectively” in the interests of mortgage holders in distress.

How can the Tánaiste get it so wrong a second time?

It's nothing to do with rate cuts, it's the actual rate that people are on which matters. It's the difference in rates between two state owned banks.

Brendan

 

[dereko1969]

Hi newirishman

Nor do I, in principle.

But it makes no sense that one state institution is charging 5.3% while another is charging 3%.

It is also completely hypocritical given that they put huge pressure on AIB to reduce the rates to 3% and then he goes on to say


He is the shareholder and he can direct his directors to charge appropriate rates and not to act as predatory lenders in a market which is not functioning normally.

Brendan

But Brendan in the best traditions of the civil service and Parliamentary Questions - his statement there is totally correct - he does not have a statutory role! He's not answering the question you want answered but his statement is correct.

 

[dgrrush]

Given PTSB's higher interest rates (even with the cuts announced), and the apparent profile of PTSB mortgage customers here (FTBs or people who purchased during the boom) is it likely that PTSB is costing the government even more money than other lenders in terms of Mortgage Interest Relief?
If that's the case might that make an even more compelling case for Michael Noonan to get his finger out and start applying some real pressure aimed at forcing PTSB to bring their rates in line the other state-funded banks?