ONE OF the new North American investors in Bank of Ireland has said that the time is not right for the bank to pass on European Central Bank interest rate reductions to mortgage customers.

New York investor Wilbur Ross, who has taken a 9 per cent stake in the bank, said the lender needed a more “normalised” funding environment to pass on ECB rate cuts.

Mr Ross, a billionaire investor, made his comments as the Minister for Finance Michael Noonan ruled out the introduction of emergency legislation to force banks to cut mortgage interest rates in line with ECB reductions.

Bank of Ireland, Ulster Bank and NIB have refused to pass on the recent quarter-point ECB rate reduction, while AIB and other Irish lenders have cut their rates.

Mr Ross told Reuters that the bank’s high funding costs made it difficult to pass on the reduction and defended the position of Bank of Ireland chief executive Richie Boucher in the face of growing pressure to pass on the rate cut.

“I can assure you that Richie Boucher is well aware of the need for responsible pricing of loans and also is aware that lower rates make it easier for borrowers to remain current in their payments,” said Mr Ross.

“High funding costs are hopefully a temporary phenomenon. In a more normalised environment, it would become easier to synchronise interest rate spreads with changes in rates charged by ECB.”

The State has a 15 per cent stake in Bank of Ireland, which is covered by the Government guarantee, and has pumped €4.2 billion into the lender.

Mr Ross was among a group of US and Canadian investors who injected €1.1 billion in the bank, taking a 35 per cent stake.

Mr Noonan said he hoped Bank of Ireland and Ulster Bank would “do what their peers have done and pass on the interest rate cut, and consequently comply with ECB and Government policy”.

Mr Noonan told the Dáil that the deputy governor of the Central Bank in charge of financial regulation, Matthew Elderfield, was not seeking additional powers.

Mr Elderfield “prefers to use the powers he has, together with his powers of persuasion which are considerable, to affect the interest rate”, said Mr Noonan.

The Minister told Sinn Féin finance spokesman Pearse Doherty that much of Ulster Bank’s funding came through sterling and the Bank of England as it was a subsidiary of Royal Bank of Scotland. He said that it did, however, access ECB funds. The State now only owned 15 per cent of Bank of Ireland, he said.

Explaining why he was not going to introduce emergency legislation, the Minister said that “binding controls tend to reduce availability of credit and channel it to the most creditworthy customers, starving smaller and less secure customers from credit”.

Mr Elderfield had indicated that this “could have a chilling effect on the entry of sound competitors into the market”, Mr Noonan said.

The Minister said if banks were absolved of their responsibility to price risk accurately, binding interest rate controls would impede the development of practices that “can ensure a healthy and free-standing banking system no longer dependent on the Government for bailouts”.

Mr Doherty called on the Minister to introduce legislation to cut rates. Mr Boucher had “rubbed the noses of the Government in it when he was invited to a meeting with the Taoiseach”, he said.

He asked if the Minister was “going to do nothing about it”.

Mr Noonan replied: “Sinn Féin historically has a different approach to getting people to do what it wants them to do than our party would have.”

The Government “will see how the situation develops over the coming weeks”.