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

The lending institutions in Ireland, including those in which the State has a shareholding, are independent commercial entities. I have no statutory role in whether regulated financial institutions pass on the ECB interest rate or in the mortgage rates they charge. They are commercial matters for each institution. The Central Bank has responsibility for the regulation and supervision of financial institutions in terms of consumer protection and prudential requirements and for ensuring ongoing compliance with applicable statutory obligations. The Central Bank has no statutory role in the setting of interest rates by financial institutions, apart from the interest rate cap imposed on the credit union sector in accordance with the provisions of the Credit Union Act 1997 and the requirement to be notified of penalty or surcharge interest imposed in respect of arrears. The mortgage interest rates that financial institutions operating in Ireland charge to customers are determined as a result of commercial decisions by the institutions concerned. This interest rate is determined taking into account a broad range of factors, including ECB base rates, deposit rates, market funding costs, the competitive environment and an institution's overall funding.

The Governor of the Central Bank, Mr. Patrick Honohan, in his opening statement to the Oireachtas Joint Committee on Finance, Public Expenditure and Reform last week, stated that the banks' drive to restore their profitability, combined with the lack of sufficient new competition, has meant that, far from lowering their standard variable rates over the past three years as ECB rates have fallen, they have increased their standard variable rates. He also acknowledged that, until very recently, bank competition has been too weak in Ireland to result in any substantial inroads on rates. The Governor also stated that in most advanced economies, including Ireland, it has long been understood that tight administrative control over the rates charged by banks would be counterproductive in ensuring a sufficient flow of properly priced credit on a lasting basis. Such control would strongly discourage new entrants. In this regard, ongoing competition in the banking sector will be crucial in ensuring that the economy is provided with efficient and cost-effective banking services. In this regard, there has been some movement on mortgage interest rates of late by a number of institutions, which suggests that the market may be entering a new and more competitive phase.

Additional information not given on the floor of the House

The Government has taken steps to ensure that the Irish financial market is accessible to any financial institution that is considering establishing itself in Ireland. In seeking to reduce the barriers to entry which are specific to the Irish banking market, section 149 of the Consumer Credit Act, as amended, which provides for the regulation of bank fees and charges, has been disapplied for the first three years in the case of new financial service providers setting up in Ireland. This arrangement was provided for in the Central Bank (Supervision and Enforcement) Act 2013. The imposition of regulation on the interest rates that commercial banks may charge will not assist in the development of competition in the banking sector and I have not seen any reasoned argument for such an imposition.

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