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

I thank the Deputy for raising this important issue. Lending institutions in Ireland, including those in which the State has a significant shareholding, are independent commercial entities. I have no statutory role in regard to regulated financial institutions passing on the European Central Bank interest rate changes or to the mortgage interest rates charged. It is a commercial matter for each institution concerned. It is not appropriate for me, as Minister for Finance, to comment on or become involved in the detailed position or manner in which individual banks choose to put forward mortgage propositions to potential customers or how that relates to existing customers.

That said, the issue of regulation of interest rates remains a policy area under active review and this has been the subject of recent correspondence between the Department of Finance and the Central Bank. The current position is that the Central Bank does not have new proposals for the additional regulation of interest rates. 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. It 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.

As I stated in previous parliamentary questions, a previous deputy Governor indicated that, within its existing powers and through the use of persuasion, the Central Bank would continue to engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds and this is a course of action I expect the Central Bank to continually appraise.

The Deputy should be aware that the Governor of the Central Bank previously stated that 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 well be entering a new and more competitive phase.

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