Terence Flanagan (Dublin North East, Independent)
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218. To ask the Minister for Finance the reason Allied Irish Banks, as a State-owned bank, was allowed to increase its variable mortgage prices, when the European Central Bank was lowering its rates (details supplied); and if he will make a statement on the matter. [6845/15]

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy will be aware the Relationship Frameworks with the banks provide that the State will not intervene in the day-to-day operations of the institutions or their management decisions. These documents are published on the Department of Finance website. I must ensure that the banks are run on a commercial, cost effective and independent basis to ensure the value of the banks as assets to the State.

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. It should also be noted that the Relationship Frameworks specifically reference decisions regarding pricing as being commercial decisions for the banks.

By way of background, the Deputy should be aware that in recent years in order to fund its mortgages, AIB and the other banks had to borrow at wholesale and deposit rates which were much higher than the prevailing ECB base rate and the banks were unable to pass through ECB reductions to customers as they had an obligation to lend at rates that were economically sustainable.

It is worth noting that as funding conditions and profitability have improved at AIB, this pressure has eased. Indeed the bank announced in October 2014 that it was reducing the standard variable rate for mortgage customers by 0.25% from December 2014. This change in rates was for both new and existing customers.