Brian Walsh (Galway West, Fine Gael)
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Question 79: To ask the Minister for Finance if he will request that the Central Bank use its powers to engage with Permanent TSB regarding its standard variable mortgage rate, which is considerably higher than that of other State-controlled banks, in order to establish if the rate is disproportionate to the cost of funds; and if he will make a statement on the matter. [41078/11]

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy is aware, neither the Central Bank nor the Department of Finance has a statutory function in relation to interest rate decisions made by individual lending institutions at any particular time. On 8th December 2011, permanent TSB confirmed that it will pass on the interest rate cut of 0.25% announced on that date by the ECB to all mortgage customers including those on Standard Variable Rates and Tracker Rates and including both home owners and investors in residential properties. In addition the bank has confirmed that it will reduce the rates applying to a number of variable rate mortgages held by both residential and investor customers by as much as 71 basis points. This includes the impact of the ECB reduction of 0.25%.

Ultimately the pricing of financial products, including standard variable mortgage interest rates, is a commercial decision for the management team and board of each bank, having due regard to their customers and the impact on profitability, particularly where the cost of funding to each bank, including deposit pricing, is under pressure.

In his recent letter to the Taoiseach, the Deputy Governor of the Central Bank stated that the Central Bank was not requesting the power to have regulatory control over the setting of retail interest rates at this time given this could absolve banks of their responsibility to price risk accurately. He indicated that the experience of such controls in the past, and in other countries, did 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. This could have an adverse effect on sound competition in the market. The Deputy Governor mentioned also that, within its existing powers and through the use of suasion, the Central Bank will engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds.