The same arrangements shall apply to Other Questions.
Other Questions
Financial Services Regulation
Billy Kelleher
Question:34 Deputy Billy Kelleher asked the Minister for Finance in view of the comments of the Financial Regulator last month and the refusal of certain banks to pass on the recent ECB interest rate reduction, his views on giving the Financial Regulator the power to intervene in the interest rate policy of banks; if he has any proposals in this area; and if he will make a statement on the matter. [34403/11]
I welcome any initiatives by the Central Bank in efforts to help home owners who are struggling with mortgage repayments.
Neither the Central Bank nor I, as Minister for Finance, has a statutory role in the setting of interest rates charged or paid by financial institutions that are regulated by the Central Bank. However, I very much welcome the decision by the lenders who have decided to reduce their standard variable rates in recent days. I encourage all lenders to do the same. Such reductions will be of benefit to home owners who are struggling with payments. The Government wants the banks to pass on the interest rate cuts for a number of reasons. In particular, the interest rate cut will be of important assistance to mortgage holders who are struggling with their mortgage repayments.
Following a request from the Taoiseach, the deputy governor of the Central Bank forwarded a report on 11 November 2011. In my reply to today's priority question from Deputy Pearse Doherty, I outlined the details contained in the report. In short, the deputy governor has stated that the power to exercise close regulatory control over retail interest rates is not sought by the Central Bank at this time. He went on to point out difficulties which would result from giving the Central Bank powers to set interest rates. These include a reduction in the availability of credit, particularly to less secure customers, a chilling effect on entry of sound competitors in the market and an impediment to progress towards the re-establishment of bank management practices that could ensure a healthy and free-standing banking system no longer dependent on the Government for bailouts.
Based on the advice received from the Central Bank, I have no plans to recommend to Government that it introduce legislation to compel lenders to reduce their standard variable rates. However, I will keep the matter under review. The question of how interest rates paid on deposits should be treated would also have to be considered in the context of any such legislation.
If the Central Bank requires additional legislative measures to enable it to carry out its functions more efficiently, I will consider its request with a view to bringing proposals to Government.
I thank the Minister. I hope the moral pressure being applied by the Government to Bank of Ireland and Ulster Bank will succeed. However, I believe the Minister will accept that is not the full story. The real issue is the wide variation in variable interest rates being charged by the covered institutions. Permanent TSB, for example, reduced its rate to 5.44%. If a new customer manages to get a mortgage with that bank today, however, he or she will be charged 6.2%. The standard variable rate of EBS is 4.8%. KBC is charging 4.6%. It is clear that some of the rates being charged are approximately double that currently being charged by AIB. The Minister is aware that this feeds directly into the level of mortgage arrears being experienced by people. We know that the forthcoming statistics are likely to show a further deterioration in the level of arrears. Is the Minister concerned about the variable interest rates that are being charged on mortgages, particularly by the covered institutions? Surely the key issue that needs to be addressed is the wide disparity among the banks in this regard.
The Deputy is correct. There is a wide variation in mortgage charges. AIB has confirmed that it is reducing its 3.25% rate to 3%. No change has been signalled in Bank of Ireland's 3.95% rate. EBS has confirmed that it is reducing its 4.93% rate to 4.68%. Irish Nationwide has confirmed that it is reducing its 4.48% rate to 4.23%. KBC has confirmed that it is reducing its 4.5% rate to 4.25%. National Irish Bank is increasing its 3.4% rate to 4.35%. Permanent TSB is reducing its 5.69% rate to 5.44%. No change has been signalled in Ulster Bank's rate of 5.15%. There is a very big variation among the rates. The only thing that really gets rid of price variations in an economy is competition. We should encourage competition. This is one of the difficulties with having two pillar banks. We are pleased that Ulster Bank is committed to continuing to operate in the Irish market. The authorities would suggest that if we have a strong third banking force, that will provide the level of competition that is necessary. There is room for Mr. Matthew Elderfield's approach.
The problem is that there is no competition in the mortgage market, in effect. The banks do not want to give out mortgages. The Minister has read some of the statistics in this regard. Guaranteed banks are charging in excess of 5% in interest on their mortgage books. That is the real issue. It warrants a policy intervention. The Minister will be aware of a report that was published by the European Commission in June. The Commission studied interest rate restrictions in the EU. Its report gave Ireland the lowest rating for effective policy interventions on the issue of interest rates. Many eurozone countries have intervened in various ways. Some of them have set a maximum rate that is linked to the average annual percentage rate that is being charged in the market. Germany has a different system. Various interventions are widespread throughout Europe and the developed world. In light of the rates that have been mentioned by the Minister, there is a need for a policy intervention to ensure the rates being charged by the guaranteed banks are more realistic and do not result in more people slipping into mortgage arrears.
It is not possible for any regime to control the interest rates that are charged without controlling the interest rates on deposits at the same time. The two of them have to go together. If the Deputy would like to make some proposals, we will consider them carefully. We would welcome them. The Deputy Governor for financial regulation, Mr. Matthew Elderfield, is very active in this regard. He is pursuing results on the basis of his current powers and his powers of persuasion, rather than seeking additional legislation. We will see how that works.
When representatives of Bank of Ireland were before the economic governmental team, were they asked how much of an additional profit they would make by not passing the ECB interest rate reduction onto their mortgage customers? By how many millions of euro will the bank, and, therefore, its shareholders, be more profitable? Has the Government written to Permanent TSB, which is charging the highest variable interest rate at 5.44%? The programme for Government included a commitment to ask banks to forgo any hike of 0.25% in interest rates. Permanent TSB has hiked up its interest rates during the Government's term of office. Has the Government formally written to that bank to ask it to produce a plan to forgo interest rate hikes? What response did it receive to the commitment it made in the programme for Government?
The banks are regulated by the Central Bank through the Governor and the Deputy Governor. Ministers meet people all the time every day. We meet people on the basis that we have full and frank discussions on issues which are confidential. I cannot go into the detail of our discussions with Bank of Ireland or any other bank but I am giving the Deputy the result of the discussions. The result has already been indicated publicly but we do not regard this business as concluded. The Deputy Governor for financial regulation of the Central Bank has powers in this area which he is pursuing.
Fiscal Policy
John McGuinness
Question:35 Deputy John McGuinness asked the Minister for Finance if he will set out his rationale for not accepting the recommendation of the fiscal advisory council on the budgetary adjustment for 2012; and if he will make a statement on the matter. [34413/11]
The Irish fiscal advisory council in its first fiscal assessment report published in October stated that it sees a strong argument for strengthening the budgetary consolidation effort and targeting a general government deficit of 1% of GDP by 2015, as compared to the target of having a deficit below 3% by that year. In that regard, the council recommended the implementation of a €4.4 billion budgetary adjustment package in 2012.
Under the terms of the EU-IMF programme, the general government deficit must not exceed 8.6% of GDP. The recently published medium term fiscal statement estimates that, based on the current macroeconomic and fiscal assessment, an adjustment of €3.8 billion is required in order to achieve that target, one to which the Government is absolutely committed. While cognisant of the views of the council, the Government is of the view that adhering to its commitment to reduce the deficit to below 3% of GDP by 2015 and delivering on the EU-IMF programme commitments is what is needed.
In striving to restore sustainability to the public finances, we must also be mindful of protecting the emerging economic recovery and seek to strike the right balance between the two. This balancing act is difficult but we believe we have struck the right balance as do the EU-IMF troika.
I thank the Minister. The reason this question was asked is that it is important we put on record the Government's response to the fiscal advisory council's report. The Government was required to establish the fiscal advisory council under the EU-IMF programme. It has not yet been put on a statutory basis but its work is well under way. I happen to agree with the Minister and with the Government's position that it would be wrong to go for an adjustment of €4.4 billion, which was recommended by the fiscal advisory council. That would have a very negative impact on the domestic economy at a time when we need confidence and certainty in it and on issues which are within the Government's control, such as upward only rent reviews, the partial loan guarantee scheme and the cost of labour, including the promised reforms of the JLCs and the REAs. That is where the focus must be. It is important we put on record the response by Government because we have not had a debate on that report. When does the Minister hope to have the council put on a statutory basis?
It is always a question of judgment. There is a lot of advice saying we should front-load the adjustment and there are people who say we are going too fast already. The debate is about whether we reduce demand in the domestic economy unduly so that any hope of growth goes out the window. It is a moot point.
I thought the report by the fiscal advisory council was very good and I thank the chairman and the members of the council who work on a pro bono basis to provide the Government with independent advice. I thought the advice on this occasion was striking.
I spoke previously on whether an adjustment of 1% by 2015 rather than an adjustment of just under 3% by 2015 is appropriate. The way I see it is that the correction will not finish in 2015 and whoever is in government after that date will have the problem of continuing it. Taking on board the advice of the fiscal advisory council, it may be appropriate to set a new target which would get us down to 1% a couple of years after 2015 but it is always a balance between taking demand out of the economy and inhibiting recovery or front-loading the pain so that we get a better run later on. It is a matter of judgment.
When will we see the Bill and when will the fiscal advisory council be placed on a statutory footing?
We have made a commitment to do so but it will not be in this term.
It is bad enough that we have effectively seen a political coup d’état by the markets and the troika in Italy and Greece in recent weeks and all the suffering resulting from these so-called fiscal adjustments but is there any recognition on the Minister’s part, as projected growth rates for Europe are being downgraded on a daily basis, that the austerity might not be working? Does the Minister agree that our ability to deal with deficit problems or even meet the terms of the troika agreement are dependent on economic growth when it is obvious that economic growth is being crippled in the eurozone? Is there any recognition on the Minister’s part or that of the troika that no matter what they do it is resulting in the contraction of the European economy which will throw all plans for this economy and that of Europe off course?
The question was on the fiscal advisory council.
I am asking about fiscal adjustment.
In regard to the proposals from the fiscal advisory council on the scale of the adjustment, I agree that a reduction to 1% by 2015 is not a path that should be followed. However, this time last year the previous Government suggested an adjustment which has grown over 12 months by €2.6 billion. It went from €9.8 billion to €11.8 billion to €12.4 billion. It has grown by €2.6 billion due to a number of factors, including growth rates, interest rates and so on. If we were to see a further increase in the value of the adjustments to be made, is there a point at which the Minister believes we could not get to the 3% by 2015? In the past 12 months, we have absorbed an additional adjustment of €2.6 billion. Is there a point at which we say that this is all that can be taken out of the economy? Some €12.4 billion or €12.5 billion is not just what we are taking out. That is an annual amount. Has the Minister examined that?
Harold Wilson said a week is a long time in politics. Six months is a very long time in the life of the European economy. One must recall that 12 months ago, we were not in the programme. Look at all that has happened since then. The Government has been in office for approximately seven months and look at all that has happened since then. To project to 2015 and to ask me to give a view on what would happen is not reasonable. We can speculate but it is of no practical impact.
On Deputy Boyd Barrett's question on whether we take cognisance of declining growth in the European economy, of course we do. We have readjusted our growth figures down from €2.5 billion to €1.6 billion for 2012.
To what does the Minister ascribe the contraction?
To translate that into very simple terms, in the Irish economy, every 1% reduction in growth rates is 0.5% of GDP. Some 0.5% of GDP up or down generates or takes out approximately €800 million in tax receipts. That is the level of adjustment we made in preparation for this budget. If we had not done the mark down, we would have approximately €700 million extra available to us. We are taking it into account but it is a fallacy to say that the reduction in growth rates in Europe is due to lack of demand or austerity programmes in Portugal, Greece and Ireland because together we represent approximately 6% of the whole outfit. If one looks at the situation in Germany, it had growth rates of approximately 4% but it is back to slightly over 0%. That has nothing to do with any austerity programmes in Germany because there are none.
What about Spain and Britain?
Social and Affordable Housing
David Stanton
Question:36 Deputy David Stanton asked the Minister for Finance further to Parliamentary Question No. 142 of 15 June 2011, the further progress that has been made by the National Assets Management Agency in discussions with Government Departments and State agencies regarding the development of proposals to contribute to social development such as the selling of property to State bodies for development of community facilities; and if he will make a statement on the matter. [34428/11]
NAMA concluded the sale of 58 social and affordable units to the Cluid Housing Association in July. The agency has provided a list of over 1,000 other properties to the Department of the Environment, Community and Local Government and I am informed that it is now in discussions with the Minister of State with responsibility for housing, his officials and the Irish Council for Social Housing with a view to identifying properties which may be suitable for social housing.
In addition, I am also aware that NAMA has approved the release of lands in Baldoyle to Fingal County Council for extra parkland; has accommodated the sale of a 13 acre site in Hansfield, west Dublin to the Department of Education and Skills; and has agreed to co-fund with Fingal County Council a link road through lands that NAMA has as security for loans in west Dublin which will link the N2-N3.
More generally, the NAMA board has committed to giving first option to public bodies on the purchase of property which may be suitable for their purposes, including social housing. In addition, NAMA advises me that it is willing to facilitate dialogue between debtors and third parties interested in acquiring property for social or public purposes.
I am pleased there is progress in this area. Is NAMA open to leasing any such properties to community groups or youth organisations which may not be in a position to purchase properties for community and sporting activities?
NAMA has a dedicated e-mail address and telephone number for Deputies who want information on its properties. I do not believe the agency would be adverse to a leasing arrangement. Generally, however, it is more inclined to dispose of properties rather than lease them. The agency is aware of its social obligations under the NAMA Act and it is fulfilling them. It is prepared to entertain any reasonable proposition which would be to the advantage of communities or voluntary organisations.
That was an interesting question from Deputy Stanton. Does the Minister believe NAMA is fulfilling its legal requirement to contribute to the social development of the State? The agency is asked to contribute to the State's social development without a price benefit to it. It is not about the first offer to a local authority. I accept it has released some lands through which roads could be built but it has a large property asset portfolio. Does the Minister believe the agency is significantly contributing to the social development of the State, as required by law? What are the Government's plans to ensure the agency lives up to this provision which was inserted into the original legislation?
NAMA was a colossal enterprise. If the Deputy is familiar with the legislation, he will know it involved much work. Then the board had to be established, staff acquired and the agency put out as a going concern. Its first task was to transfer the impaired loans in excess of €20 million from the banking system. That has been accomplished, with the last of the transfers completed recently, and its total nominal value is now approximately €74 billion. NAMA is now disposing of property. I had conversations with the agency's chairman about its social mandate of which it is conscious and is fulfilling. It must be remembered it is not the agency's main objective.
I earlier listed some the social projects which it concluded but it is open to more. It is in discussions with the Department of the Environment, Community and Local Government which may make a large number of houses made available by the agency for social housing purposes.
I do not understand how property transferred or sold by NAMA can contribute to dealing with the 93,000 people on housing lists when the Government announced over the summer that there would be no more direct building of council housing. Will the Minister square that circle for me? Will the Minister also explain the economic rationale behind local authorities leasing properties from NAMA, as the rental income will go back to NAMA or developers and not the authorities?
I am not sure what point Deputy Boyd Barrett is pursuing. As well as NAMA owning much residential zoned land, it also owns much unoccupied property. Across the country, the agency has unoccupied apartments and houses as part of its debt portfolio. It has expressed its willingness to engage with local authorities for them to acquire some of these properties for social housing purposes. The housing stock is available. It is a question of making an arrangement and doing the deal.
Bank Guarantee Scheme
Dessie Ellis
Question:37 Deputy Dessie Ellis asked the Minister for Finance if he will provide a breakdown of the amounts of emergency liquidity assistance including interest charged currently held by banks covered by the eligible liabilities guarantee. [34442/11]
The Central Bank of Ireland does not comment on exceptional liquidity assistance, ELA, operations and any queries relating to specific credit institutions would need to be directed to each particular institution. The Central Bank does, however, publish details of its liquidity operations at a system level. Any loans by the bank are contained in its balance sheet which is updated on a monthly basis as part of its monthly statistics. Table A2 in the balance sheet, Financial Statement of the Central Bank, highlights European Central Bank borrowings under the heading "Lending to Euro Area Credit Institutions relating to Monetary Policy Instruments" while exceptional liquidity assistance would be captured under the category "Other Assets". At the end of October, these amounted to €47.7 billion, down from a peak of approximately €70 billion at the end of February last.
Separately, table A4 in the balance sheet, Credit Institutions' Balance Sheet (A4.2 Covered Institutions ), highlights ECB borrowings under the heading "Borrowing from the Eurosystem related to Monetary Policy Operations". The covered institutions' figures are identified in table A4.2 and exceptional liquidity assistance to covered institutions would be captured in tables A4 and A4.2 under the heading "Remaining Liabilities".
Deputies will be able to access this information themselves as it is quite complex in the context of reading the Official Report.
Clearly the Minister did not get the chance to finish his contribution but I will read the Official Report on the overall level. I presume the detailed breakdown will be provided in that.
What discussions have taken place between the Department of Finance, the ECB and the Governor of the Central Bank to have the ELA changed from two-week funding to long-term funding? It has been claimed such a change would greatly assist our banks. However, there has been no discussion about it. Why is the ECB reluctant to provide long-term and medium-term financing to our banks?
Since I first became Minister for Finance in March 2011, at all my meetings with the ECB the issue of medium-term funding for the banks has been raised. The bank's position is that it is not legally empowered to give funding beyond a short-term basis. Recently, however, there has been a change of policy because it is now willing to give medium-term funding of up to 12 months. We would like assurances beyond that term but it is an advance.
There is no suggestion that the bank will withdraw funding from us. It has assured us at all times that whatever the roll-over period will be, it will continue to roll it over.
Has the new 12-month funding arrangement been extended to any Irish bank? If so, which banks have been able to avail of it? I understood these arrangements are not on offer to Irish banks.
I am not aware of it being applied to Irish banks yet. I will get that information for the Deputy to ensure what information I have provided is up to date.
Has the Minister sought an extension of the eligible liabilities guarantee beyond the end of 2011? If so, has he had contact with the European authorities on this?
We are considering this aspect. The likelihood is that there will be an extension of the scheme. There is also a likelihood that banks will be in the market to get deposits without guarantee.
Mortgage Assistance
Timmy Dooley
Question:38 Deputy Timmy Dooley asked the Minister for Finance if he has to date made any decisions on the recommendations of the Keane report or on any other measures designed to assist distressed mortgage holders; if he will give an outline of the timeline for action on measures to assist distressed mortgage holders; and if he will make a statement on the matter. [34400/11]
As indicated previously, the Government is acutely aware of the increasing financial stress that some households are facing arising from difficulty in meeting their mortgage commitments. It was for this reason that the Government requested an inter-departmental group to consider further necessary actions to alleviate the increasing problem of mortgage over-indebtedness. As the Deputy is aware, the group's report has now been published and it is still the subject of a detailed and very worthwhile debate in this House.
However, progress has already been made in response to acting on a number of the recommendations of the inter-departmental report and work has commenced across a number of Departments and agencies. These will build on the measures already in place to assist mortgage holders such as the MARP process and the revised Code of Conduct on Mortgage Arrears. The inter-departmental report identified reform of personal insolvency law as a critical measure to tackle mortgage distress and the Minister for Justice and Equality has now undertaken extensive work on the development of a Bill to bring forward the necessary legislative provisions in order to modernise the law in this regard. This is being advanced as a priority matter.
The Minister for housing and planning has also commenced work on the implementation of two mortgage-to-rent schemes in line with the report's recommendations. The Minister has indicated that the schemes will operate on a pilot basis initially and that work is now well advanced with a lender and an approved housing body to make the pilot schemes operational as soon as possible.
My own Department is undertaking a process of direct engagement with banks on the development of voluntary approaches by mortgage lenders and, in addition, the Central Bank has also asked mortgage lenders to produce detailed mortgage arrears resolution strategies and implementation plans as a matter of urgency for submission by the end of November.
This House is continuing its debate on the inter-departmental report and the Government has stated that it will consider and take account of the many contributions made, both inside and outside the House, to this debate in its ongoing efforts to address the problem of mortgage difficulty. Once the Dáil debate has concluded I will, following assessment of the points raised, be bringing proposals to Government on next steps including an implementation mechanism. This will enable the recommendations of the inter-departmental report to be progressed in a co-ordinated fashion in order to provide effective and meaningful solutions for those borrowers that are facing difficulties in meeting their mortgage commitments.
I thank the Minister. His closing remarks implied that the Government has accepted the recommendations of the Keane report. What is the status of those recommendations? Has the Government formally made the decision to accept in full or in part the recommendations of the Keane report because the Minister referred to progress being made on a number of fronts implementing the recommendations of the report? With one in eight mortgages in real difficulty we can all agree that this is an area of the highest priority and we need to see the Government coming forward as quickly as possible with a comprehensive announcement of the package of measures it intends to bring forward as a policy response to the crisis following on from the Keane report. When does the Minister hope to come forward with a Government decision and an announcement in this House on the steps he intends to take following the Keane report?
All Deputies opposite and the Deputies on this side of the House, together with Deputy McGrath, urge that urgent action be taken in this instance. While the Keane report was put before the House for the subject of debate and for information purposes without the Government taking decisions, it was self-evident early in the debate that there was common ground on a number of issues and the Government began to proceed with those. First, there must be new bankruptcy and insolvency legislation. Second, there is merit in back-stop arrangements where somebody who is about to lose their house can enter into an arrangement where they can continue to live in that house. The Minister for housing has initiated a number of pilot schemes and made considerable progress on that. It is also common ground that circumstances differ between one household and another and that there must be a range of intervention instruments.
What we intend to do now, rather than hold up affairs, is proceed as I have indicated, take into account suggestions made by the Deputies opposite and many colleagues on the Government side, take an implementation strategy to Government at an early date and announce that, and then proceed to implement in line with the implementation strategy.
Will the Minister clarify whether he expects that we will have a public announcement by the Government on the mortgage crisis and the Keane report in advance of the budget on 6 December? If there are measures that flow from the report and Government decisions that require a budgetary decision, those would have to be decided upon prior to that date.
Thank you, Deputy. I must call the Minister because we are out of time. There are Deputies offering but I cannot call them today.
Work is proceeding and the lack of an announcement has not inhibited the work, as I have outlined. I am planning to make an announcement before Christmas but whether that is before or after the budget I cannot say. It is more likely to be in those weeks between the budget and the Christmas recess.