No evidence of Central Bank efforts to cut mortgage rates

Michael Noonan has stated to the Oireachtas that SVR is a commercial decision for the banks. Even state-owned banks. This is all just smoke and mirrors, he has zero intention of doing anything here and that includes chasing the central bank to do something about it.
 
Even so, there has been a result, and AIB have reduced their rates. Let's see if people care enough abuot his issue to attend the meeting tomorrow. Honestly with all the marches for water you'd imagine people would understand that this is a much bigger issue and means a lot of money in people's pockets if it succeeds. Bills for water pale in comparison.
 
Reply from Minister Noonan re my query

An Roinn Airgeadais Oifig an Aire

Department of Finance Office of the Minister

Sráid Mhuirfean Uacht, Telephone:

Baile Átha Cliath 2, Facsimile:

Éire. LoCall:

VPN: 8109

Upper Merrion Street, http://www.irlgov.ie/finance

Dublin 2,

Ireland.



15/1080/MF


18 May 2015






Dear


The Minister for Finance wishes to acknowledge receipt of your email dated 13th April 2015 regarding Variable Rate Mortgages.


The lending institutions in Ireland - including those in which the State has a significant shareholding are independent commercial entities. The Minister has no statutory role in relation to regulated financial institutions passing on the European Central Bank interest rate change or to the mortgage interest rates charged. It is a commercial matter for each institution concerned.


The Minister does not consider that it is appropriate for him, as Minister for Finance, to comment on the manner in which individual banks choose to put forward mortgage propositions to potential customers or how that relates to existing customers.

That said, the issue of regulation of interest rates remains a policy area under active review and this has been the subject of recent correspondence between the Department of Finance and the Central Bank. The current position is that the Central Bank does not have new proposals for the additional regulation of interest rates.

The Central Bank has responsibility for the regulation and supervision of financial institutions in terms of consumer protection and prudential requirements and for ensuring ongoing compliance with applicable statutory obligations. The Central Bank has no statutory role in the setting of interest rates by financial institutions, apart from the interest rate cap imposed on the credit union sector in accordance with the provisions of the Credit Union Act, 1997 and the requirement to be notified of penalty or surcharge interest imposed in respect of arrears.

The Minister stated that a previous Deputy Governor indicated that, within its existing powers and through the use of persuasion, the Central Bank would continue to engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds and indicated that this is a course of action he expects the Central Bank to continually appraise.

The Governor of the Central Bank, previously stated that it has long been understood that tight administrative control over the rates charged by banks would be counterproductive in ensuring a sufficient flow of properly priced credit on a lasting basis. Such control would strongly discourage new entrants. In this regard, ongoing competition in the banking sector will be crucial in ensuring that the economy is provided with efficient and cost effective banking services. In this regard, there has been some movements on mortgage interest rates of late by a number of institutions which suggest that the market may well be entering a new and more competitive phase.

The mortgage interest rates that financial institutions in Ireland charge are determined as a result of a commercial decision by the institutions. This rate is determined taking into account a broad range of factors including European Central Bank base rates, deposit rates, market funding costs, the competitive environment and an institution's overall funding.

The Central Bank (Supervision and Enforcement Act) 2013 introduced changes to Section 149 of the Consumer Credit Act 1995 which regulates fees and charges in order to attract new entrants to the Irish banking sector. There is some evidence of improvements in the banking sector with a number of institutions introducing new products and adapting their business model. In the last 12 months there have been a number of new entrants to the Irish mortgage market bringing additional and welcome competition to the mortgage market.

The Governor of the Central Bank and the Minister for Finance meet regularly, the latest of these meetings took place on 2 April. Among the items discussed was the issue of mortgage interest rates. The Governor provided an update on the ongoing work that he and his officials are carrying out on the issue of the standard variable rates charged by the lenders.

The Governor and the Minister noted that the SVRs charged in Ireland are higher than other euro area countries and have not fallen in line with ECB wholesale rates. The Central Bank will continue to research why this is the case and will publish results shortly. The Governor will update the Minister on progress in due course.



Yours sincerely,



___________________________

Alex Lalor

Private Secretary to the Minister for Finance.
 
I received the same email from Minister Noonan. Does anyone know when the AIB rate cut comes into effect?
Didnt notice any difference this month.
 
Reply From Minister Today

I like many of you received the meaningless reply quoted above from the Ministers private Secretary today.

What a hopeless and patronising reply. Big news in letter is that the Minister and Governor met on April 2nd- WOW! . The Minister awaits to hear again from the Governor with his research!!- how much longer?.

Everybody now needs to send a speedy reply to the Minister and their Government TDs to register their disgust and annoyance at this stupidity and ask for legislation to be introduced immediately.
 
I was looking for something else and came across a paper that Matthew Elderfield (former Head of Financial Regulation at the Central Bank) delivered in UCC in October 2011 that I thought was quite interesting in the context of this discussion. The following is the relevant extract:-

"The Central Bank does not have the power to set standard variable rates or other interest rates – nor does the government (although as shareholder in many of the domestic banks it does have the opportunity to influence management actions.) However, it may be that these actions are, on balance, self-defeating if they push more customers into arrears, adding to the mortgage arrears problem and ultimately costing more in terms of capital.

We are looking closely at this issue, and we do have a statutory responsibility so far as it concerns the soundness of banks. Accordingly we have decided to require any bank that has received government capital support to provide an impact analysis of any proposed standard variable rate increase in terms of the implications for its arrears position and future capital requirements, and that the bank’s Board of Directors be required to review and approve this analysis to ensure that proper attention is given to the costs of such actions.

We informed lenders in February of this year to allow at least 30 days notice to be given in advance of any SVR mortgage rate increases and we are now introducing this as part of the revised Consumer Protection Code. These are admittedly limited actions in light of the absence of direct powers by a public authority concerning rate setting. If the banks continue to act in a way which is so damaging to customers and which appears to take advantage of the current dysfunctional competitive environment, it seems they are courting the risk of a public policy response involving powers to impose direct restrictions on their rate setting capacity by the competition or financial regulatory authorities."
 
Mackemdub said:
good to see how much has changed in 3.5 years. oh, wait a minute...
Click to expand...

To be fair, quite a lot has changed in the last 3.5 years - the cost of funds to our banks has dropped considerably but the long term mortgage arrears problem has continued to escalate.

Politicians and regulators are fond of making veiled threats but are less fond of tackling actual problems.
 
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