Peadar Tóibín (Meath West, Sinn Fein)
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Question 115: To ask the Minister for Finance the efforts he has made to ensure that reductions in the ECB interest rate are passed on to the end user in the business community. [36215/11]

Michael Noonan (Limerick City, Fine Gael)
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As I said in a reply to a question from Deputy Troy on 16 November last, the decisions financial institutions operating in Ireland make on the interest rates they charge to customers are commercial decisions for the institutions concerned. Interest rates are determined by a broad range of factors including ECB base rates, deposit rates, market funding costs, the competitive environment, and an institution's overall funding. I have no statutory function in relation to business interest rate decisions made by individual lending institutions at any particular time.

The Financial Regulator and Deputy Governor of the Central Bank stated in his response of 11 November 2011 to the Taoiseach on the issue of passing on mortgage interest rate adjustments following ECB actions, that the power to exercise close regulatory control over retail interest rates is not sought by the Central Bank. Similar principles apply in relation to business interest rates. The Deputy Governor has indicated that the Central Bank will, within its existing powers and through suasion, engage with specific lenders which appear to have standard mortgage variable rates set disproportionate to their cost of funds.

He has indicated that experience of such controls in the past and in other countries does not encourage the Central Bank to believe that such a regime would be advantageous in net terms as the banking system recovers its normal functioning. Binding controls tend to reduce availability of credit and channel it to the most creditworthy customers, starving smaller and less secure customers from credit. The Regulator indicates that this could have a chilling effect on the entry of sound competitors into the market. By absolving banks from their responsibility to price risk accurately, binding interest rate controls would, especially during this recovery phase, impede progress towards the re-establishment of bank management practices that can ensure a healthy and free-standing banking system no longer dependent on the Government for bail-outs.

In conclusion, it is vital that the banks continue to make credit available to support economic recovery. However, it is not in the interest of the banks, businesses or the economy for finance to be provided unless the business is viable and has the capacity to meet the interest payments and repay the sum borrowed.