Analysis: The Central Bank doesn't have powers to force Irish banks to reduce their standard variable interest rates but the Deputy Governor in charge of financial regulation Matthew Elderfield has signalled that it will seek a legislative change if they don't do so voluntarily.

By calling on mortgage lenders to halt their interest rate hikes, Mr Elderfield is seeking to fire a warning shot at the banks, saying that if they don't rein in the rate increases then the Central Bank is prepared to take the extraordinary step of seeking powers to cap their interest rates.

In the meantime, the Central Bank is seeking to press the boards and chief executives of the banks into action on the increasing levels of arrears across the mortgage market and the effect of the rate increases on the €64 billion of capital injected by the State into the banks.

Mr Elderfield is trying to raise the question in the minds of the banks - has the decision by Permanent TSB, for example, to increase standard variable interest rates actually backfired and made the arrears problem worse and will it ultimately cost more to the taxpayer?

The mortgage books at the Irish lenders are loss-making as more than half of almost 800,000 residential mortgages in the country are priced on tracker interest rates, following the European Central Bank base rate at a narrow margin above it.

The ECB base rate stopped being a relevant gauge for the banks' own cost of funds, leaving them nursing major losses on their mortgage books. A standard variable mortgage - which account for about one in every four mortgages in the country - is the only dial that a bank can turn to increase the amount of money that it makes on a mortgage as banks are tied into tracker rates for the life of the mortgage.

The Central Bank can raise the threat of dramatically seeking legislative changes but, ahead of that, the regulator can twist the bankers' arms by seeking before the end of November strategy plans, which it must approve, to show how they are going to address the thorny issue of rising mortgage arrears. The action is designed to focus minds at the banks that the problem of mortgage arrears is theirs to solve.

Meeting bank chief executive in one-to-one encounters is the first step for the Central Bank in forcing the banks to deal with this deteriorating problem for which the Government has said there is no silver bullet solution.