Michael McGrath (Cork South Central, Fianna Fail)
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Question 163: To ask the Minister for Finance his views on the operation of mortgage lenders (details supplied) whose parent company is a beneficiary of State support. [2555/12]

Michael Noonan (Limerick City, Fine Gael)
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Neither I, as Minister for Finance, nor the Central Bank, have a statutory role in the setting of interest rates charged or paid by financial institutions regulated by the Central Bank except in the case of the interest rate cap imposed on the credit union sector. Each institution determines the rate it charges its customers, depending on a number of factors, such as cost of funds and commercial considerations, competition in the market, risk pricing and the impact on deposit rates. 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. 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 seeks to recover to 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 continue to engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds.