Stephen Donnelly (Wicklow, Independent) | Oireachtas source

I thank the Governor for coming before the joint committee. As always, he is showing openness in his interaction with us. The Governor noted in his opening statement that the early indications suggest this process is working. In my opinion, the contrary is the case and the process is not working, certainly not in the interests of the economic recovery of the country. We see a major variation in the type and quality of offers the banks are making to borrowers and in differences in the behaviour of the banks in terms of what is acceptable. Some are engaging in very good behaviour, while others are engaging in very bad behaviour.

The joint committee has observed that a large number of the so-called solutions offered so far are either legal letters or what I would describe as "extend and pretend" solutions, that is, term extensions and so forth. When representatives of several of the banks appeared before us recently, their chief executives stated that, as a matter of banking policy, they will not engage in any write-downs of debt, notwithstanding the requirement to do so as part of the insolvency legislation. If the banks do not provide write-downs, where it is appropriate to do so, citizens will be forced into unnecessary bankruptcy.

The reason the process is not working is that arrears are not the problem but a symptom of the problem.

The problem is that many Irish households have too much debt relative to their current and near-term income. I believe the process as it is playing out will just hide the problem. Let us say, for example, that all the arrears are cleared by the end of next year. Then, as this is played out, the quantum of debt will, by and large, be the same, as the level of household income. Ergo, the problem will not have been resolved but will simply have been hidden. There is a huge opportunity to get this right, if we can mandate solutions like debt wreck and if we can, for example, stop Bank of Ireland from pretending that charging the full amount of interest on the shelved proportion is anything other the normal loan split in half. I believe that Mr. Honohan, as Governor, is a key person to do this.

Who is in charge? My understanding was that up until recently, the Central Bank did not have much power to direct the banks. Therefore, in preparation for the meeting today, I took a look back at the new Central Bank Act which came into effect in July, which gives the Central Bank significant new powers. Part 7 of the Act gives the Central Bank power to issue directions to the banks. One of these powers is that if a financial institution is conducting business in a manner that could jeopardise or prejudice the rights and interests of customers, the Central Bank can direct that bank. This means the Central Bank could give a direction and part of that direction would be to tell the banks how they can operate. Part 8 deals with the type of regulations the Central Bank can make, one of which is a provision specifying requirements which are to apply in regard to the provision of financial services to a customer for the purpose of determining the suitability of the financial services to the customer etc., provisions about making loans available etc.

I am not a lawyer, but in Mr. Honohan's opinion does he now have the power he needs, if he so chooses, to direct the banks? For example, could he say to Bank of Ireland that the Central Bank will not allow it use its pretend split mortgage. Could the Central Bank tell all of the banks they must use debt for equity in conditions it deems acceptable. Does the Central Bank have the power to do that or does the Oireachtas need to give further legislative authority to it to get this process moving properly.