Dáil Éireann Debate, Wednesday - 14 December 2011
79 Deputy Simon Harris asked the Minister for Finance if he will outline the statutory mechanisms and oversights which enable the State to compel financial institutions in which it has shareholdings to pass on ECB interest rate cuts; his views on whether the current statutory mechanisms are sufficient; if he intends to introduce reforms in this area; and if he will make a statement on the matter. [40242/11]
View answerNeither I, as Minister for Finance, nor the Central Bank, have a statutory role in the setting of interest rates charged or paid by financial institutions regulated by the Central Bank. Each institution determines the rate it charges its customers, depending on a number of factors, such as cost of funds and commercial considerations, competition in the market, risk pricing and the impact on deposit rates. Ultimately the pricing of financial products, including variable mortgage interest rates, is a commercial decision for the respective management teams and boards of the banks having given due regard to its customers and the State as majority shareholder.
In his recent letter to the Taoiseach, the Deputy Governor of the Central Bank stated that the Central Bank was not requesting the power to have regulatory control over the setting of retail interest rates. He indicated that the experience of such controls in the past, and in other countries, did not encourage the Central Bank to believe that such a regime would be advantageous in net terms as the banking system recovers its normal functioning. Binding controls tend to reduce availability of credit and channel it to the most creditworthy customers, starving smaller and less secure customers from credit. This could have an adverse effect on sound competition in the market. The Deputy Governor mentioned also that, within its existing powers and through the use of suasion, the Central Bank will engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds.
