Professor Patrick Honohan:

There are certainly on the high side.

However, we must ask what we mean by "too high". As the committee was told by the banks that presented to it in the past few weeks, they cannot fund themselves at the ECB policy rate. That is not the way it works, as everyone knows. The 4.5% should not be compared with 0.05% in terms of the cost of funds. Approximately 300 basis points or 3% is the spread over the banks' average cost of funds, although less over their marginal cost of funds. It is a bit on the high side, but not by all that much. We do not have the power to intervene.

I will jump ahead to the question of whether the Oireachtas should consider giving us that power. I would suggest not. In terms of the provision of mortgage credit and the in-flow of banking services into the economy, the confidence around the way banking and the financial system work - I am not referring to national confidence - is not well served by there being tight control over interest rates. In the 1960s to 1980s when a cartel of bankers was setting interest rates subject to some kind of approval by the Minister for Finance and the Central Bank, it was a facade because our control did not influence the rates, which were largely coming in from abroad. It would not be a good idea to introduce a regime of tightly controlled mortgage rates.

However, I would make an exception. The committee will presumably be considering legislation in the near future about the mortgages that are sold to non-banks, ones that are simply harvesting those mortgages without getting involved in new business. It may be that there should be some limitation on the degree to which they could deviate from market practice. What locks the standard variable rate contract into reality is the fact that it should be the rate that is charged by the lender on new and old business, more or less keeping lenders in line with market conditions. However, if an entity is not making new business, it might not have this natural restraint.