Thursday, 2 May 2013

Questions (65)

Michael McGrath

Question:

65. Deputy Michael McGrath asked the Minister for Finance the reason he was willing to intervene with the State supported banks in 2011 to force them to pass an ECB rate reduction but will not now intervene in respect of the large widening gap between the ECB base rate and standard variable mortgage rates; and if he will make a statement on the matter. [21023/13]

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Written answers (Question to Finance)

As the Deputy will be aware the Relationship Framework with the banks provides that the State will not intervene in their day-to-day operations or their management decisions. These frameworks are published on the Department of Finance website. I must ensure that the banks are run on a commercial, cost effective and independent basis to ensure the value of the banks as an asset to the State, as per the Memorandum on Economic and Financial Policies agreed with the EU Commission, the ECB and the IMF. Neither the Central Bank nor the Department of Finance has a statutory function in relation to interest rate decisions made by individual lending institutions at any particular time. The ECB rate bears no relationship to the cost of funding for Irish and indeed many other banks, and until the banking system normalises across Europe the ECB rate cannot be taken as an indicator of funding costs. The rates charged by the banks must cover their actual cost of funding to enable them to return to profitability, and support the economy.