Billy Kelleher (Cork North Central, Fianna Fail)
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Question 34: To ask the Minister for Finance in view of the comments of the Financial Regulator last month and the refusal of certain banks to pass on the recent ECB interest rate reduction, his views on giving the Financial Regulator the power to intervene in the interest rate policy of banks; if he has any proposals in this area; and if he will make a statement on the matter. [34403/11]

Michael Noonan (Limerick City, Fine Gael)
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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.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister. I hope the moral pressure being applied by the Government to Bank of Ireland and Ulster Bank will succeed. However, I believe the Minister will accept that is not the full story. The real issue is the wide variation in variable interest rates being charged by the covered institutions. Permanent TSB, for example, reduced its rate to 5.44%. If a new customer manages to get a mortgage with that bank today, however, he or she will be charged 6.2%. The standard variable rate of EBS is 4.8%. KBC is charging 4.6%. It is clear that some of the rates being charged are approximately double that currently being charged by AIB. The Minister is aware that this feeds directly into the level of mortgage arrears being experienced by people. We know that the forthcoming statistics are likely to show a further deterioration in the level of arrears. Is the Minister concerned about the variable interest rates that are being charged on mortgages, particularly by the covered institutions? Surely the key issue that needs to be addressed is the wide disparity among the banks in this regard.

Michael Noonan (Limerick City, Fine Gael)
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The Deputy is correct. There is a wide variation in mortgage charges. AIB has confirmed that it is reducing its 3.25% rate to 3%. No change has been signalled in Bank of Ireland's 3.95% rate. EBS has confirmed that it is reducing its 4.93% rate to 4.68%. Irish Nationwide has confirmed that it is reducing its 4.48% rate to 4.23%. KBC has confirmed that it is reducing its 4.5% rate to 4.25%. National Irish Bank is increasing its 3.4% rate to 4.35%. Permanent TSB is reducing its 5.69% rate to 5.44%. No change has been signalled in Ulster Bank's rate of 5.15%. There is a very big variation among the rates. The only thing that really gets rid of price variations in an economy is competition. We should encourage competition. This is one of the difficulties with having two pillar banks. We are pleased that Ulster Bank is committed to continuing to operate in the Irish market. The authorities would suggest that if we have a strong third banking force, that will provide the level of competition that is necessary. There is room for Mr. Matthew Elderfield's approach.

Michael McGrath (Cork South Central, Fianna Fail)
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The problem is that there is no competition in the mortgage market, in effect. The banks do not want to give out mortgages. The Minister has read some of the statistics in this regard. Guaranteed banks are charging in excess of 5% in interest on their mortgage books. That is the real issue. It warrants a policy intervention. The Minister will be aware of a report that was published by the European Commission in June. The Commission studied interest rate restrictions in the EU. Its report gave Ireland the lowest rating for effective policy interventions on the issue of interest rates. Many eurozone countries have intervened in various ways. Some of them have set a maximum rate that is linked to the average annual percentage rate that is being charged in the market. Germany has a different system. Various interventions are widespread throughout Europe and the developed world. In light of the rates that have been mentioned by the Minister, there is a need for a policy intervention to ensure the rates being charged by the guaranteed banks are more realistic and do not result in more people slipping into mortgage arrears.

Michael Noonan (Limerick City, Fine Gael)
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It is not possible for any regime to control the interest rates that are charged without controlling the interest rates on deposits at the same time. The two of them have to go together. If the Deputy would like to make some proposals, we will consider them carefully. We would welcome them. The Deputy Governor and Financial Regulator, Mr. Matthew Elderfield, is very active in this regard. He is pursuing results on the basis of his current powers and his powers of persuasion, rather than seeking additional legislation. We will see how that works.

Pearse Doherty (Donegal South West, Sinn Fein)
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When representatives of Bank of Ireland were before the economic governmental team, were they asked how much of an additional profit they would make by not passing the ECB interest rate reduction onto their mortgage customers? By how many millions of euro will the bank, and, therefore, its shareholders, be more profitable? Has the Government written to Permanent TSB, which is charging the highest variable interest rate at 5.44%? The programme for Government included a commitment to ask banks to forgo any hike of 0.25% in interest rates. Permanent TSB has hiked up its interest rates during the Government's term of office. Has the Government formally written to that bank to ask it to produce a plan to forgo interest rate hikes? What response did it receive to the commitment it made in the programme for Government?

Michael Noonan (Limerick City, Fine Gael)
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The banks are regulated by the Central Bank through the Governor and the Deputy Governor. Ministers meet people all the time every day. We meet people on the basis that we have full and frank discussions on issues which are confidential. I cannot go into the detail of our discussions with Bank of Ireland or any other bank but I am giving the Deputy the result of the discussions. The result has already been indicated publicly but we do not regard this business as concluded. The deputy governor, financial regulation, of the Central Bank has powers in this area which he is pursing.