Mr. Bernard Byrne:

The cost of funding the mortgage book is based on the funding cost for the bank. For a long time now, the ECB has not been a funding cost for the bank. The predominant cost of funding for the bank has been the deposit cost to it and what it has been doing in the wholesale marketplace in terms of ancillary funding in that regard. The ECB has been a decreasing portion of the bank's funding. The ECB funding was always associated with the proportion of our distressed book which it was funding as we were trying to deleverage that programme. The ECB provides the bank with funding to fund its deleveraging of assets. As those assets are sold the ECB is paid off. That is the logic. The ECB as a movement in the marketplace, which has decreased to a low rate, is not the basis on which the bank can fund itself today, tomorrow or in the next few weeks. The deposit base of the bank is funding it. That is our core funding cost. Incrementally on top of that we have the cost of our wholesale funding transactions, which are more expensive. On top of this is the added operational costs associated with running a mortgage book plus a margin.

When we last appeared before the committee ten months ago we talked about where rates were going and their probably reaching levels of below 5% and that that may not be where it stops. We have no intention at this point of increasing rates. However, I cannot guarantee in terms of where funding costs go that the rates being spoken about will not reappear. Looking at the UK and European marketplace rates at various points in time, it is evident that long term rates do move between 4.5% to 5.5% or 6% with very low base rates. Obviously, if base rates go above that and funding costs in general rise different things happen. The current rates are where we are trying to get to in terms of establishing a viable bank that can generate profitability from the loan book, which is the standard variable rate book, with no cross-subsidisation factored in, considered or thought about in relation to the tracker book.