Professor Philip Lane:

The Deputy used the word "anomalies" which is probably a good word in this context. Any analyst, not just the Central Bank but across the world of regulation and, indeed, in investment banks whose job is to review banking systems and interest rates, would explain the vast bulk of interest rate levels by reference to risk and the fact that there have been large-scale mortgage defaults but limited ability to enforce security through the courts. Concentration in the market is also an issue and there is an element of monopoly power. The solution to that is to create conditions which, in combination with economic recovery, will deliver more entry into the market.

The final leg are anomalies, the slice of loans which look extraordinarily high. The more we can encourage switching from loans with higher rates, the less sustainable it will be for any individual firm, institution or bank to persistently have these rates in excess of what the market delivers. Two weeks ago I said that there is a lot of scope for many individuals to switch, not only across institutions but within institutions. If a firm has a particularly high SVR but offers other products which can deliver a considerable saving, customers should consider switching. We think the level of switching is too low and more can be done to encourage it. It is also an information and education issue and the CCPC has a lead role in that context.

We have to accept that it will take a while for the Irish banking system to be reclassified. Right now it can be classified as a system with a demonstrated history of severe mortgage losses and very limited ability to repossess a home. There are good economic and social reasons this country has decided to have very limited repossessions but there is a cost to that in how the world views the funding of banks and risks facing mortgage lending here.