BANKS WHICH have refused to pass on mortgage interest rate reductions should “reconsider their position” or face legislation forcing them to do so, Tánaiste Eamon Gilmore has warned.

He rejected claims that he and Taoiseach Enda Kenny had been too polite in a meeting with three banks on Wednesday at which the financial institutions refused to drop the mortgage interest rate. Mr Gilmore said the banks had a “period of time” in which to reflect on the issue. If they did not reconsider their decision not to pass on the 0.25 per cent drop by the European Central Bank in its key interest rate to 1.25 per cent, the the Government “will take action”, he insisted.

Fianna Fáil deputy leader Éamon Ó Cuív, who raised the issue in the Dáil, called for an emergency issue to be introduced in the Dáil next week to force banks to drop their mortgage rate. He also called for the Government to “replace forthwith all public interest directors who are now not acting in the public interest”.

Mr Gilmore insisted they had made the Government’s view “very clear to them”.

The ECB “did not reduce interest rates in order that the banks could pocket the money. It did so with a view to having the reduction passed on to borrowers and to release more money into the economy”.

He added that after the meeting the Taoiseach contacted the Financial Regulator and discussed “the additional powers he might require to deal with these circumstances”. The regulator had been asked to make an assessment and the Government expected to receive it “quickly”.

Pressing the Tánaiste on the issue Mr Ó Cuív said executives of banks owned by the State were now public servants and should “not be paid more than public service pay rates”.

He singled out AIB, which he said was 94 per cent owned by the State. AIB, Bank of Ireland and Ulster Bank attended the meeting on Wednesday with the Government’s economic management council.

Mr Gilmore replied: “We are going to take this one step at a time. This is not about words. The Government is acting on this.”

Mr Ó Cuív pressed him again. “Are you going to enforce it?” he asked of the interest rate reduction.

“That’s step number two,” said Mr Gilmore. He said that if the banks “do not reconsider their position”, the Government “will take action as appropriate”.

The Tánaiste said the Taoiseach met Financial Regulator Matthew Elderfield yesterday and asked him to assess the issue. They awaited that response.

Caoimhghín Ó Caoláin (SF) claimed the Government’s reaction was “pathetic”. He said the Taoiseach, Tánaiste, Minister for Finance and Minister for Public Expenditure and Reform met the banks’ representatives and “in response to their polite request that the banks pass on the recent interest rate reduction, they were told ‘No’ ”.

The Tánaiste dismissed what Mr Ó Caoláin “portrayed as a polite conversation”.

He said “no one leaving the room was in any doubt and there was no ambiguity about the Government’s intention and determination that mortgage holders and those borrowing from the banks would benefit from the interest rate reduction”.

Mr Ó Caoláin said: “There is an absolute responsibility on the Government to stand up to the banking institutions.”

He believed that the Government knew what had to be done and despite what the regulator might recommend, “the Government will have to take the decision to stand up and confront the banks”.

Mr Ó Caoláin suggested the Government already had an indication of what was necessary and had an assessment from the regulator, “verbal or otherwise”.

Mr Gilmore said they did not have such an assessment and had not made a decision, but would take action as appropriate when they had the analysis.