The Government is acutely aware of the increasing financial stress that some households are facing arising from difficulty in meeting their mortgage commitments. However, the banks in Ireland, including those in which the State has a significant shareholding, are independent commercial entities and decisions on the handling of their individual mortgages and other loans, including distressed loans, are solely a matter for the Boards and management of individual institutions in the exercise of their commercial and fiduciary responsibilities. As Minister for Finance I have no role to play in the decisions the covered banks make on the treatment of individual loans. The most recent capital injection in the covered banks took place in 2011 and it arose from the March 2011 Central Bank PCAR assessment. This assessment, which was based on certain macro economic and loan loss assumptions on all parts of the loan books, including mortgages, of the covered banks identified a further capital requirement. The Central Bank has clearly stated that banks now have a substantial capital buffer with which to absorb losses on their mortgage portfolios and the State authorities now require determined action by banks to identify and resolve unsustainable mortgages. While I cannot be prescriptive as to what decisions banks should make in individual cases, it is now necessary for the covered banks, and indeed all banks, to work through individual cases of debt difficulty and to ensure that unsustainable debts are appropriately restructured.
From an overall policy perspective, the role of the public authorities is to encourage and put in place the most appropriate framework that will allow both debtors and creditors, including the covered banks, to recognize and address genuine mortgage and loan difficulty. In that regard, the fact that the Central Bank will shortly be setting targets to work through problem cases and to put in place durable solutions is most welcome. However, if it does not prove possible for creditors and debtors to reach mutually acceptable agreements to deal with problem debt, there is then an onus on the State to provide for a fair and effective personal insolvency regime. Indeed, the “Keane Report” clearly stated that, without effective personal insolvency legislation, the mortgage arrears problem will not be resolved. The new Personal Insolvency Act, which provides for a very significant modernization of bankruptcy law and introduces new and more easily accessible frameworks for the statutory resolution of problem debt, will meet that requirement. It is clear that effective action to deal with unsustainable personal debt will not only be of benefit to the individual borrower in difficulty but will also be in the best interests of the wider economy.