Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

While the Government is acutely aware of the increasing financial stress that some householders are facing in the current environment, ultimately, the pricing of financial products, including standard variable mortgage interest rates, is a commercial matter for the management and the board of the institution. At the same time, the Government must ensure that the day-to-day running of these institutions has regard to competition, market conditions and the need to develop stable commercial enterprises to meet the long-term credit needs of households and businesses.

The Deputy will be aware that the relationship framework with the bank provides that the State will not intervene in the day-to-day operations of the bank or its management decisions. The frameworks are published on the Department of Finance website. I must ensure that the bank is run on a commercial, cost-effective and independent basis to ensure the value of the bank as an asset to the State, as per the memorandum on economic and financial policies agreed with the EU Commission, the ECB and the IMF.

Neither the Central Bank nor the Department of Finance has a statutory function in respect of interest rate decisions made by individual lending institutions at any particular time. I understand that Allied Irish Banks has not yet announced any increase to the standard variable rate. AIB last increased the standard variable rate in November and that increase brought the rate to 4%, lower than most of the other financial institutions. For example, Bank of Ireland and Permanent TSB have rates of 4.35% and 4.34% respectively.

To fund mortgages the bank must borrow at wholesale rates, which are currently higher than the ECB base rate. The bank must ensure that the rate it lends at is economically sustainable and provides a return for the bank and, ultimately, the State as its shareholder. I understand that the Central Bank pays attention to the effect of any increases in the standard variable rate on mortgage arrears and it would no doubt be concerned if banks were exacerbating their arrears problem and as such impairing their ongoing feasibility by such actions.

See this speech in context