Seán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I welcome the opportunity to speak on this Private Members' Bill introduced by my colleague, Deputy Michael McGrath, who has shown great consistency in bringing this topic to public attention in recent months. The only time the Minister addresses the issue is when it is raised by Opposition Deputies. The Government would not take any action on mortgage interest rates if it were not for the Opposition and it does so on occasion only to save its own blushes when the issue is highlighted in this Chamber.

This is outstanding, careful and measured legislation. The crunch issue is the proposal to require the Central Bank to carry out an assessment of the state of the mortgage market. Should the Central Bank conclude that a market failure exists, the legislation provides that it would be empowered with a range of tools to influence standard variable interest rates. A couple of qualifications apply. The Bill does not require the Central Bank to intervene but provides it only with the power to intervene. In the first instance, it must examine the mortgage market and only where it finds that the market is operating unfairly would it be empowered to take action on variable interest rates. This is a fair and reasonable approach.

In recent years, we have heard a great deal about mortgage arrears. More recently, the debate has moved on to the 300,000 people who are being crucified by variable mortgage rates, which are out of line with the European Union average. I note the post-programme surveillance report issued by the European Commission last week specifically refers to the importance of allowing banks to obtain sufficient interest rate margins as a means of sustaining the return of profitability. My party accepts that Irish banks must be profitable. Having bailed them out, we want them to be profitable, albeit not at the expense of ordinary citizens who are being gouged and forced to pay on the double. The 300,000 variable rate mortgage holders paid through their taxes to bail out the banks and are now being asked, through the variable interest rates they are being charged, to pay again to return the banks to super-profitability. This is not necessary as they are performing well.

The Commission's post-programme surveillance report notes that the standard variable rate in Ireland is relatively high compared to other European countries and states the main reason for this is credit risk with high non-performing loans and legacy assets. Referring to the recent appearance of the Governor of the Central Bank before an Oireachtas committee, the report states that the Central Bank requested that banks provide a clear and quantified statement of how they set their standard variable rates. This means the Central Bank does not know how variable mortgage rates are set. Imagine the Governor of the Central Bank informing the Joint Committee on Finance, Public Expenditure and Reform that he wants a clear and quantified statement of how the banks set their variable mortgage rates. Shame on the Governor of the Central Bank. It is his job to know how the banks do this. That he can come before an Oireachtas committee and state that the banks should produce documentation and a quantified statement on how they set their rates makes him appear as if he as an observer who has come in from the street. How can the Central Bank regulate the banks if it does not even know the basis on which they set their interest rates?

The Governor of the Central Bank indicated that this information was sadly lacking and subsequently argued that continued pressure on the banks to cut rates may undermine financial stability by reducing bank profitability and impact on future privatisation prospects. I do not take issue with the argument that the banks must be profitable. The Governor also argued that such continued pressure could also have negative implications for market competition by discouraging potential new entrants to the market. I have news for Professor Honohan. I do not know where he was before the problems with the banks occurred, although I know he was not in the Central Bank at the time, but competition was one of the reasons for these problems. When Bank of Scotland entered the market, it claimed it would be the Ryanair of the banking sector and offered low interest rates. All the other banks followed suit to maintain market share and this decision to chase business and engage in excessive and unbridled competition was one of the reasons for the over-lending in the market that resulted in boom and bust policies and the collapse of the financial and property sectors. Despite this, the Central Bank is arguing that we need more competition in the Irish banking market. We need the banks operating here to be regulated by the institution charged with regulating them.

I am shocked by the Governor of the Central Bank's statement to an Oireachtas committee that the Central Bank requires a quantified statement on how the banks set their variable interest rates. I am also shocked that he professed not to have this information. I am not shocked that people are being overcharged when the Governor of the Central Bank does not know what is going on and makes a public plea for information. He should have summoned representatives of the banks to his desk years ago and asked them to provide this information on an ongoing basis.

One thing the Central Bank has done in recent days was to publish a report in which it noted that seven of the major financial institutions - we can assume this to mean practically all of them - have not been adhering to the mortgage arrears resolution process. I and others are aware of court cases where people have defended themselves because they did not have the financial resources required to take legal advice. They will state that the mortgage arrears resolution process was not followed in their case. When such cases are dealt with in the courts, a senior counsel will appear on behalf of the bank and he or she will be advised by a solicitor who has, in turn, been advised by the legal team of the bank in question. This team will have been advised in turn by a mortgage loan manager who will have been advised by a regional manager who has been advised by the official at branch level who dealt with the mortgage holder. The evidence is not even third hand but is at the end of six or seven links in a chain of hearsay evidence that culminates in the legal representative of the bank claiming in court that the bank in question followed the mortgage arrears resolution process. Having reviewed this matter, the Central Bank should now publish the names of the banks in question. Rather than doing this, it has stated it will write a letter to the seven institutions in question. It is again failing citizens by being docile in its dealings with the banks. It is not surprising that the banks are getting away with the statements they are making.

During the hearings of the Joint Committee on Finance, Public Service and Reform, we learned that the banks have over-provided for mortgage losses in recent years and a substantial element of the profits they recorded in the past 12 months is the result of writing back previous provisions. They now acknowledge that they overstated their provisions in the past and presented this information to the joint committee a couple of weeks ago. Moreover, the formula for calculating write-downs was based, among other things, on a 55% fall from peak in the market value of the properties that had been mortgaged. This year, the formula used is only 50% and with prices set to rise next year and the following year, the formula used will be a 30% fall from peak. The banks, in determining the variable mortgage interest rate, factored into their cost structures a property collapse that is now turning around. They also factored in previous arrears which they now describe as being under control. According to the banks, 62% of people in mortgage difficulties have accepted new arrangements and the majority of these arrangements are working.

As such, the level of previous arrears is also declining. They have all said their cost of funds is down at 1% to 1.5% yet they are charging 4% and 4.5%. Even the European Commission in its own couched language acknowledges that an excessive margin is being made by the banks here. The Central Bank seems to know it but does not know how it is happening notwithstanding that it is its job to know. According to the little information the Central Bank does have, the banks are not following the mortgage arrears resolution process. It is no wonder they are playing ducks and drakes. It is only when Fianna Fáil and, in particular, my colleague Deputy Michael McGrath raises these issues whenever we have a chance to do so that there is a flutter of activity by the Minister and the Central Bank to yield some results. Unfortunately, the results we have seen to date are too little too late.

There is scope for a substantial and significant reduction. The European Commission says so. The Central Bank does not yet know how much it should be as it has not been doing its job. If we come out of this with anything, it should be a Central Bank that is properly able to oversee rates and how they are calculated. Then, we might get some reduction. The Minister is relying on the Central Bank for information but it is clearly saying it does not know how the rates are arrived at.

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