Minister for Finance Michael Noonan is seeking a response “within weeks” from the banks at the outset of two days of talks with the lenders on the pricing of their variable rate mortgages.
As controversy intensifies over the banks’ refusal to pass on a succession of European Central Bank interest cuts to some 300,000 variable rate customers, Mr Noonan will indicate to the chiefs of the main lenders that the Government will take action if they don’t.
The effort to confront the banks comes amid mounting pressure on Mr Noonan from backbench TDs in Fine Gael particularly, who have been demanding a deeper response from the Government.
Groundswell
Although tracker mortgage customers have benefitted from moves by the ECB to bring rates close to zero, most variable rate customers have received little or no benefit.
“There’s a groundswell of opinion in the parliamentary party this has to happen, a sense that we’ve been a bit flatfooted in response,” said one member of the parliamentary party.
“There’s a general expectation that something will be happening. Unless they start dealing with it quickly, it’ll become a bigger issue.”
In some assessments among senior Fine Gael figures, the variable rate question is far more pressing for the party in advance of the general election than the mortgage arrears debacle. Some in the party expect banks to phase in a 0.75 percentage points variable rate cut in a series of 0.25 percentage point cuts.
Two proposals to prise action from the banks are in play if they defy the Minister: a public levy on the institutions in question or new Central Bank powers to cap mortgage rates, powers which the Central Bank itself does not want.
Each of these mechanisms are under examination within the Government but they are not without complexity.
At issue in talks on a levy is the question of preventing the banks from clawing back the charge via higher fees for other products. Also in question is the development of a mechanism to deliver the benefit of a levy to the variable rate customers of individual banks.
Mr Noonan has called in senior figures of the nationalised AIB today for the first in a series of meetings with all mortgage lenders which continue on Thursday.
AIB cut rates at the start of this month, the second reduction in six months, a measure the Minister described as a “first” step.
It remains unclear whether action on this front by AIB would compromise prospects for the Government to start offloading its shares in the bank this year. Close observers believe Mr Noonan sees this as a key political priority in advance of the election.
Research
Further questions surround the stance of the part-nationalised Bank of Ireland, which has so far refused to yield to pressure from the Government on its rates.
Mr Noonan’s spokesman said: “He’ll be presenting the Central Bank research. In addition, he’ll be asking them to set out their plans for the short and medium term.”
The Central Bank has concluded in a report to the Minister that it would be advisable for the banks to cut rates to avoid a political response to the matter.
There was no response yesterday from Mr Noonan’s department to a private member’s Bill from Independent Senator Feargal Quinn which would hand powers to the Central Bank to cap variable interest charges.
While no formal deadline is likely to be set, Mr Noonan wants to hear concrete plans from bank chiefs very swiftly.
