The next item on the agenda is correspondence. Deputy Ó Caoláin has sent me a letter regarding the fact that two leading banks have not passed on to customers the recent reduction in ECB interest rates. He asks that this issue be examined by the committee before the summer recess. He also states banks are closing local branches without regard to their customers' interests. A copy of the letter has been circulated to members.
Business of Joint Committee.
Before the Taoiseach makes a claim, I welcome that the banks have taken up on my encouragement of their adherence to the European Central Bank's decision to lower percentage rates by 0.5%. Unfortunately, not all of them passed on the benefit in its entirety to their customers. Claims of offering the still most competitive rate do not negate the responsibility on them to do exactly what was intended by the ECB - to pass on the benefit to the consumer in order to generate further economic activity. I reject the AIB's claim in that regard and think there have been a number of other anomalies in terms of the response of some of the others - the major banking and building society institutions. The merit of my proposal stands, irrespective of the late movement of some of the institutions in question. I commend the proposal to the committee to invite the senior representatives of the banking institutions and financial houses to come before the committee and hear our concerns about their response in this instance and on wider matters.
On a point of clarification, does the Deputy mean the individual banks or a body such as the Irish Bankers Federation?
The individual institutions should be held accountable. They should present and identify themselves, rather than the umbrella group. They have acted individually, independently and differently of each other.
So we believe.
This is what I am told but I note Senator Mansergh's comment.
We will begin with the major banks.
That would be appropriate.
I commend the Deputy for making a wise decision. In the last Dáil I sat on this committee and every time the Irish Bankers Federation was asked a difficult question, it regarded the matter as being the business of its individual members. It said it was an umbrella group with no authority. It was a waste of time speaking to it.
I support this proposal. The question was not so much whether they would pass it on but when they would do it and by how much. Both the media and political focus are a little narrow in just concentrating on the mortgage rate, important though that is and perhaps the most important to many. Businesses, farmers and personal borrowers are paying 9% to 12% on average. No matter how much the European Central Bank rate comes down - it has come down a great deal in recent years - I do not recall any reduction worth talking about in the higher rates. They seem to stay frozen in time, even if one looks for a new loan even to nudge up a notch. We need to examine the reason there is such a huge gap between the ECB rate and all these other categories of non-mortgage lending. I heard a member of this committee, Deputy Richard Bruton, make that point on the radio this morning and think it is very valid.
I suggest that the proposal might be very slightly altered to endorse Senator Mansergh's remarks. There is the question of the cost of doing business in Ireland, the cost of banking services which includes the cost of interest, particularly for small and medium-sized business. We have recently introduced legislation to establish the Irish Financial Services Regulatory Authority under the Central Bank. The European Central Bank announced an interest rate cut in order to stimulate competitiveness throughout Europe and try to address the issue of an excessively strong euro versus the dollar. This cut was made for very sound fiscal reasons in an attempt to give an advantage to the wider European economy. I was stunned when the banks here effectively decided not to pass it on and had to be dragged kicking and screaming to make some concessions. The Central Bank, which still occupies a large building and has many civil servants, and the Irish Financial Services Regulatory Authority either do not have or chose not to exercise power in this regard. Representatives of the Irish Bankers Federation criticised the notion that the Irish Financial Services Regulatory Authority should point the finger at the banks for not passing on the interest rate cut and suggested that the authority was overstepping the mark.
The Minister for Finance promised us a second Bill. During the debate on the Bill we discussed both the prudential side and the aspect of value for money for customers. Two of the big costs of small and medium businesses are bank and insurance related charges. Although they are private services, in both cases the costs are incredibly high. No public service charges anything like what the banks and insurance companies do for services that people must have.
I support Deputy Ó Caoláin's suggestion and would like to see it structured in such a way that we also have a counterpoint in relation to the position of the Irish Financial Services Regulatory Authority and the Central Bank. Perhaps we could all be educated. I know that if the European Central Bank raised interest rates, the banks would have notices on their windows and websites the same evening.
Deputy Burton's proposed extension of the motion's intent is reflected in the text before us. I address not only the most recent issue regarding passing on the reduced interest rates announced by the European Central Bank, but other matters relating to the unacceptable practices of Irish banks. These include bank charges and the ongoing practice of these major institutions of closing branches in a number of communities not only in rural Ireland but in a number of city locations also. These matters need to be addressed. I commend my proposal, which gives this committee the opportunity to do so.
Coincidentally I have received a letter today from Cork County Council. I had meant to note it as correspondence at our next meeting as I did not have time to discuss it with the secretariat before today's meeting. As it is directly related to what we are discussing, I can circulate it. It asks the committee to investigate the recent experience of the council. The AIB was its main bank and had invited other banks to provide services. Cork County Council as a large organisation was very dissatisfied that Bank of Ireland said it was not in a position to provide the range of services required, even though it provides such services for other local authorities. It felt this lack of competition resulted in a severe cost to it. We will agree to follow this up and try to make arrangements for a suitable date.