Michael Noonan (Limerick City, Fine Gael)

As the Deputy will be aware, the ECB is not the only source of funding for banks in this jurisdiction. A lot of their funding comes from their deposit bases and they provide a variety of interest rates to attract deposits. If one looks at the logic of this, the only reason the ECB reduces interest rates is that it fears Europe may be sliding into recession and as a consequence it wants to put more spending power into the pockets of European consumers. That is why the interest rates have been reduced in Frankfurt. It is logical that banks in other jurisdictions should pass on the interest rate reduction because, if they do not, they are frustrating the macroeconomic policy of the ECB when it introduces reductions in interest rates.

The current position is that all lending institutions in Ireland who lend for mortgage purposes, with the exception of Bank of Ireland and Ulster Bank, have passed on the reduction. The action of the Taoiseach in calling the banks in and discussing their lending policies was arranged prior to the interest rate reduction. He took the opportunity to raise it with them. The Deputy Governor, Mr. Matthew Elderfield, also has an approach. He said he prefers to use the powers he has, together with his powers of persuasion which are considerable, to affect the interest rate.

We hope Bank of Ireland and Ulster Bank will do what their peers have done and pass on the interest rate cut, and consequently comply with ECB and Government policy. Ulster Bank is a subsidiary of the Royal Bank of Scotland and, therefore, a lot of its funding comes through sterling and the Bank of England although it can and does access funds the ECB. Bank of Ireland is an Irish bank but the State now only owns 15% of it.

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