Dáil Éireann - Volume 678 - 26 March, 2009

Written Answers. - Banking Sector Regulation.

Deputy John Perry asked the Minister for Finance if he is monitoring charges made to bank customers over inter bank rates set by the European Central Bank; and if he will make a statement on the matter. [12594/09]

  Deputy Brian Lenihan: The Deputy may wish to note that the decision whether an institution operating in Ireland passes on ECB interest rate reductions to customers is primarily a commercial decision for the institution concerned.

However, as the Deputy will be aware, I have publicly indicated that I expect institutions to pass on funding cost reductions to their customers as appropriate, including in particular to those purchasing properties on variable mortgages and to small and medium-sized enterprises. This is important to help support sustainable growth and employment in line with the objectives of the Government guarantee scheme and the Government’s recapitalisation programme.

For example in the case of mortgage interest rates, I understand that in general credit institutions differentiate between mortgages of owner occupiers and residential investors for the purposes of setting mortgage interest rates. I have been informed by the Financial Regulator that all of the covered institutions have fully passed on each ECB interest rate cut to owner occupiers since the bank guarantee scheme was introduced and that this will be so for the latest ECB cut announced on 5 March 2009.

However, it must be borne in mind that credit institutions are not primarily funded from the ECB but from a variety of sources and the cost of much of their funding has been significantly above ECB rates over the last year.

The Deputy will be aware that many lenders are conducting extensive advertising campaigns, showing that competition is a real factor on the mortgage scene. The existence of that level of competition in the mortgage lending market is sufficient, I believe, to ensure that credit institutions will reduce their rates where possible in order to remain competitive and retain their share of the market.

[978] The Deputy will appreciate that a balance must be achieved by Government between influencing private banks through the bank guarantee scheme and other financial support incentives while at the same time being seen to have a hands-off approach to the day to day running of these institutions which must operate on a strictly commercial basis.