Michael Noonan (Limerick City, Fine Gael)

I welcome any initiatives by the Central Bank in efforts to help homeowners who are struggling with mortgage repayments.

Neither the Central Bank nor I, as Minister for Finance, has a statutory role in the setting of interest rates charged or paid by financial institutions that are regulated by the Central Bank. However, I very much welcome the decision by the lenders who have decided to reduce their standard variable rates in recent days. I encourage all lenders to do the same. Such reductions will be of benefit to homeowners who are struggling with payments. The Government wants the banks to pass on the interest rate cuts for a number of reasons. In particular, the interest rate cut will be of important assistance to mortgage holders who are struggling with their mortgage repayments.

Following a request from the Taoiseach, the deputy governor of the Central Bank forwarded a report on 11 November 2011. In my reply to today's priority question from Deputy Pearse Doherty, I outlined the details contained in the report. In short, the deputy governor has stated that the power to exercise close regulatory control over retail interest rates is not sought by the Central Bank at this time. He went on to point out difficulties which would result from giving the Central Bank powers to set interest rates. These include a reduction in the availability of credit, particularly to less secure customers, a chilling effect on entry of sound competitors in the market and an impediment to progress towards the re-establishment of bank management practices that could ensure a healthy and free-standing banking system no longer dependent on the Government for bailouts.

Based on the advice received from the Central Bank, I have no plans to recommend to Government that it introduce legislation to compel lenders to reduce their standard variable rates. However, I will keep the matter under review. The question of how interest rates paid on deposits should be treated would also have to be considered in the context of any such legislation.

If the Central Bank requires additional legislative measures to enable it to carry out its functions more efficiently, I will consider its request with a view to bringing proposals to Government.

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