I welcome the Minister of State at the Department of Public Expenditure and Reform, Deputy Brian Hayes.
ECB Interest Rate Reduction: Statements
I am glad to come to the Seanad to speak about this important matter. As Senators are well aware, this is getting extensive coverage in the media and it is a very important issue for the Government.
I want to reiterate some of the points made by the Minister for Finance, Deputy Noonan, in the other House today and during the course of the past few days. The Government welcomes the decision by the lenders——
Will a copy of the Minister of State's speech be circulated?
I do not know. I offer my humble apologies if it has not been circulated.
The Minister of State should not apologise, I was just asking. I was trying to be nice.
There should be copies of the speech. I apologise to the Senator.
Any reduction, however small, is welcome by all mortgage holders but especially by those who are in arrears or who are experiencing difficulty meeting repayments. To that end, the Government wants all lending institutions to pass on the ECB interest rate cut for a number of reasons. Senators will be aware that the Economic Management Council met with the chief executives of three lending institutions last week. Following the meeting, the Taoiseach requested a report from Mr. Matthew Elderfield, deputy governor of the Central Bank. The Government was particularly interested to know if the Central Bank required more powers in this area. I should say, at this point, that one of the banks present, AIB, which had previously declined to pass on the interest rate reduction, has now decided to do so. The Government welcomes that decision. The Government would encourage the other two institutions present and which were made well aware of the Government's concerns to follow suit.
The report from the deputy governor was received on Friday last. I will outline briefly for Senators what the report contained, although I am aware that some of its contents have already been discussed in the media. The deputy governor acknowledges that the Government is not unjustified in having concerns for particular banks regarding the widening of the spreads by which their standard variable rate exceeds their cost of funds and how they are still so far above the prevailing rates of their industry peers.
The essential points which Mr Elderfield makes are as follows. Standard variable rates of mortgage interest from Irish banks reached historically low levels in early 2009 but several forces have contributed to the subsequent increases in such rates. First, the access of the Irish banks to wholesale funding from the market was sharply curtailed, especially from mid 2010, and there was a sharp increase in the interest rate cost of what market funding was secured. Second, whereas the ECB policy rate is only 0.25% higher now than it was in 2009, the total cost to the banks of some of the sizeable drawings that they have made on Central Bank funding is much higher than the policy rate. Third, the banks appear to have increased — at different times and to different degrees — the spread by which the standard variable rate exceeds their costs of funds.
As Senators are only too well aware, it is the third issue on which the current debate is mainly focused. Mr. Elderfield mentioned in his report that a somewhat wider spread of new loans could be rationalised on the basis of the banks' belated realisation of the credit risk that may be involved in mortgage lending. He also states that a significant widening of mortgage interest rate spreads has been happening in other countries. An important point which the deputy governor has made is that it is less clear that retroactively applying a risk spread to existing loans is fully consistent with fair practice in view of the fact that in the past standard variable rates have generally moved broadly in line with the cost of funds.
The Minister for Finance has mentioned a number of times in the Dáil in replies to parliamentary questions that neither the Central Bank nor he has a statutory role in the setting of interest rates charged or paid by financial institutions regulated by the Central Bank. This is a commercial decision for the institution concerned. Each institution determines the rate which it charges or pays depending on a number of factors, such as the cost of funds, competition in the market, risk pricing and the impact of deposit rates. The deputy governor has indicated in his report that the power to exercise close regulatory control over retail interest rates is not sought by the Central Bank at this time. He has outlined the difficulties which could result from Central Bank powers to set interest rates and these views emanate from experience in the past and in other countries. These include a reduction in the availability of credit, particularly to less secure customers, a chilling effect on entry of sound competition 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 that is no longer dependent on the Government for bail-outs.
Taking into account the advice from the Central Bank, the Minister for Finance has indicated that while the matter will be kept under review, he has no plans to recommend to the Government that legislation in this area should be introduced. In the event that the introduction of legislation is considered, the matter of what interest rates are paid on deposits will also have to be examined, and this particular aspect may not be welcome by depositors and institutions.
I draw attention in particular to the concluding comments of the deputy governor's letter. He clearly states that the Central Bank's strategy is to ensure that lenders treat their customers fairly and comply with the bank's code of conduct on mortgage arrears. He states that he will take stronger action to resolve the position of customers in unstainable mortgages while at the same time prudently conserving their capital, which in many cases has been replenished by taxpayers. The Central Bank is requiring mortgage arrears resolution strategies from all lenders by the end of this month. The deputy governor intends to engage with the lenders on the arrears issue, pressing for progress on a number of fronts, such as the unsustainable mortgage question. I am advised that the Minister for Finance will, along with the Central Bank, continue to monitor developments in this important area and will keep under review all options for further action available to him.
When one considers the totality of the mortgage loan book in this country, we have roughly 750,000 mortgages, with 400,000 of these tracker mortgages. Consequently, as the ECB rate falls, so does the mortgage rate in those mortgages. I understand approximately 150,000 mortgages operate on a fixed rate, and their prevailing rate is clear to the consumer. We are therefore left with approximately 200,000 mortgages coming under a variable interest rate. The great majority of banks have passed on the reduced rate decided by the ECB in such mortgages. I refer to AIB, EBS, Irish Nationwide Building Society, KBC, National Irish Bank and Permanent TSB. The two banks which have not passed on the cut are Bank of Ireland and Ulster Bank. When we address the issue of ECB changes not being passed on, it is important to state that this is a minority issue as the great majority of people with mortgages are unaffected; some 400,000 have tracker mortgages and another 150,000 have fixed rate mortgages. This is a relatively small group. In that context, I humbly submit that it makes no sense for the banks in this circumstance not to pass on the cut, as the numbers concerned are relatively small in comparison to the great majority of customers, who either have fixed or tracker products. A matter of particular concern is a point that has already been referred to by the deputy governor when he said it had come to his attention that it could well be the case that banks have decided to effectively allow those on fixed variable rates to subsidise the loss-making tracker rates. Our position is clear and those changes should be passed on for the purposes of helping the domestic economy as they do in other eurozone countries.
I learned the basic economic tenet years ago that the way to provoke domestic demand and business activity is to reduce interest rates. The logic of that position is that these rates should be passed on. The Government is fully aware of its role and that of the independent regulator. We do not want a scenario where we dictate to anybody and we will not return to the broken regulatory past that got us into this mess in the first place. The Government's view is that if Mr. Elderfield, the deputy governor, requires further powers, we will consider the matter. In his reply to the Taoiseach and the Minister for Finance he has made it clear he does not require them at this stage but he will examine further regulatory changes, particularly with more of a consumer focus. That has been made abundantly clear. It is the firm view of the Government that these rates should be passed on and it is important for the domestic economy. It is also important for householders with a strangling debt problem.
I have stated to this House for some months that we must bring forward the implementation plan following the Keane report. The Minister stated in the other House that this is still the view of the Government and we are working on it. We seek the support of parties in this House, as in the other House, to ensure the successful implementation of those measures.
I remind Senators that we are now taking questions, which should be no longer than a minute each.
I understood main spokespersons would have a little more time.
Not according to the Order of Business.
On a point of order, the notice we received on this indicated that there would be statements on the recent ECB interest rate reductions. That was circulated from the Seanad office and the Leader last week.
The Seanad office does not regulate the Order of Business.
We got it from the Leader.
The Leader made a proposal this morning which was agreed by the House. It indicated there would be time for questions which were to be a minute long, and the time would expire at 7 p.m.
May I inquire as to why it was changed?
This is what was proposed on the Order of Business and agreed by the House.
I would be happy to facilitate statements for several minutes, with the agreement of the House, if others wish to make a contribution.
It is not my intention to hold up other speakers.
I realise that but others may wish to speak.
Business will conclude at 7 p.m.
I am aware of that.
I am conscious of that.
Perhaps we could have three or four minutes to give everybody an opportunity to contribute.
Is the Senator proposing an amendment to the Order of Business?
I am.
Will it be for two or three minutes?
I propose to extend our time for statements by three minutes each, by agreement.
Is that agreed? Agreed. How much time will the Minister of State have to wrap up?
He may have six minutes.
Is that agreed? Agreed. We will take the Members present as others who may have a priority could walk into the Chamber. My hands would be tied. Is it agreed to take contributions from the people present? Agreed.
I thank Senator D'Arcy. I thank the Minister of State for coming to the Chamber and I hope to drag him back tomorrow night to speak on flooding on the Adjournment. Once again we have had optics from the Government but little in the way of action. We had the Keane report many weeks ago and we are still getting the call from the Government for cross-party co-operation as it deliberates, yet again, on what to do about mortgages.
Last week there was a major meeting, with bankers summoned to speak to the Taoiseach and the Tánaiste, and on my Facebook page I expressed disdain and shock at the attitude which the bankers seem to display towards the public and the elected Government in television interviews on the news. We were promised action on foot of this and one bank, wholly State-owned, has given in. Nothing else has happened and we have now been told the meeting was a public relations exercise; the Government succeeded with one bank but the other main institution, which may have more than 40% of the market, would do nothing. Ulster Bank, a large player, also would not be required to do anything. We have been told nothing can be done and action is not required.
The original reason for seeking the interest rate reductions in banks was not to give everybody on a variable rate mortgage a tracker mortgage but rather that the regulator originally stated that high interest rates were having an effect on the arrears problem. In such circumstances legislation is warranted, although I acknowledge that the issue is complex. The Fianna Fáil Party has been considering the issue and is drafting a Bill, although it is not yet complete.
We have done much research on models in other countries. Section 47 of the Consumer Credit Act 1995 has not been mentioned in this debate, which allows any consumer to go to court to have an interest rate adjusted for various reasons, including prevailing interest rates, age, business competence, level of literacy of the consumer, degree of risk or costs for the creditor and the extent of competition for the type of credit required. The provision already exists in the Consumer Credit Act but it has not been reflected in any of the debate up to now. It may provide a template for action by the regulator. No party is looking for everybody to have a tracker mortgage, where rates would move with ECB rates, but there may well be circumstances where high interest rates would affect arrears and people's ability to pay mortgages and stay in their houses. The regulator must be given the power to deal with that position.
The policy making body is the Oireachtas, which instructs the Government, rather than the regulator. In this case it seems the regulator is telling the Government that it does not want the work. The regulator may have reasons for not wanting more work and it is understaffed. There is much to do in the office. That should not prevent a policy response from the Government and the Oireachtas. It is disappointing that the policy response does not seem to be forthcoming.
We will put together a Bill which will probably be debated in our next Private Members' business slot in the Seanad, although there is much ongoing work. People are demanding action and those on the ground cannot believe the inaction. The Keane report was a reflection of a report from a year ago, with a couple of changes. The Minister of State, Deputy Penrose, has now resigned and the mortgage-to-rent scheme was his and the Labour Party's baby. What is happening? People are sick of optics and spin. We have seen the newspaper articles and people want real work and change in order to foster hope. The people gave the Government a good wind in February and even when some of us lost our seats we hoped, for the sake of the country, that the Government would do a good job. Spin has followed stories and people have banged their fists on the table. However, when real action is required, it has not been forthcoming. People want to see action.
I urge the Government to consider the matter again and examine existing precedents in Irish legislation and abroad. They can be used.
I will not get into an argument with the Senator and although he espoused some points well, I do not agree with some others at all. All of the focus is on the €116 billion in the mortgage loan book with the five covered banks but we have not considered the commercial loan book. The analysis of the commercial loan book is as fraught in terms of the over-extension of individuals in that regard. With the increase in the interest rate here — I consider that an increase by Bank of Ireland is particularly belligerent. If we are being honest and fair, by virtue of the fact that AIB did not pass on the two 0.25% increases that were introduced in the past 12 months, in truth there were perhaps some grounds for it to say it would not pass on the decrease. Bank of Ireland did pass on the two 0.25% increases and it is particularly belligerent in its insistence that it will not pass on the decrease.
I had the experience of dealing with a senior official in Bank of Ireland. I am satisfied now that the banks have no intention of using the recapitalisation fund the State put into that particular bank in the past 18 months to write down mortgage and commercial loan books. Bank of Ireland is intent on sitting on the funds in order to say the bank is tier 1 capitalised. I am clear on that. The information came to the Joint Committee on Finance, Public Expenditure and Reform in recent weeks. When Bank of Ireland came before the committee it had written down none of its mortgage loan book. We did not get information on the commercial loan book. The assessment of Blackstone is that X number of billions of euro was required to write those loans down. It has not happened and it is not happening. Bank of Ireland is being belligerent. Its belligerence is also evident in the discussion on the parliament building on College Green.
The Governor of the Central Bank and the deputy governor have a stick to use. I would prefer if it were a carrot and a stick rather than just a big stick. The exceptional liquidity assistance, ELA, funding which is being given to the banks every two weeks can be increased or decreased as the Central Bank deems necessary. I propose that the Minister would consider using the measure as a carrot and a stick or as the big stick to beat up Bank of Ireland, whichever way he deems necessary. The measure should be considered for Bank of Ireland in particular because it has been treasonous and treacherous in terms of how it is dealing with its clients.
I welcome the Minister of State, Deputy Brian Hayes, to the House. I will not dwell overly on the spin issue but I accept there is a danger, first, that it raises hopes for people that their mortgages will be reduced, which subsequently the Government is not able to deliver. That is one downside. The second issue about which I am concerned is that the more interventionist the Government is in the operation of the banking system, the more we may scare and discourage the markets which would prevent us getting back to being able to borrow on the bond market as against where we are at the moment. I accept it is a difficult issue. I share the Government's concern about mortgage holders. People are very distressed and in a difficult situation.
I wish to make a couple of requests of the Minister of State. The first relates to the letter that came from the Financial Regulator, Mr. Matthew Elderfield. It would be useful if the letter to the Taoiseach was published. I accept the Minister of State quoted from it but I would welcome if the letter was published in its entirety. I call upon the Minister of State to do that.
Second, could I try to elicit a response from the Minister of State on the collapse of the Custom House Capital financial institution? It raised questions about the failure of the Central Bank and the Financial Regulator to react, specifically when they were put on notice in 2009 that issues arose surrounding the company and how it was functioning and that a dearth of information was given to investors. Given the history of what has happened in the regulatory area, it is imperative that we are vigilant now. We need specific answers. I accept the matter is being examined by the regulator but we need to get specific answers in that regard.
People applauded the previous Minister for Finance, the late Mr. Brian Lenihan, for the changes he made at the top of the Central Bank and to the Financial Regulator. The previous Financial Regulator failed miserably to do his job. The change is good. However, all of the staff who were working under the previous Financial Regulator are still in place. We need some assurance that they are performing to a higher level than they did in the past.
We need competition. I have sympathy for passing on the ECB rate decrease but it is a peripheral issue. The more fundamental issue is the huge disparity that exists at present in the charging of interest rates by the various financial institutions. We need far greater transparency. I urge the Minister of State to examine the possibility of the cost of funds being published by each financial institution on almost a daily basis in order that those who borrow from the banks would receive on their statements the cost of funds and the margin they are being charged. A creeping situation arises in that regard and people are in distress. We must be mindful of the history of the banks with regard to unethical practices on interest rate charges and other banking charges. We must be much more vigilant but I would be slow to intervene too much in the market. We need a functioning banking system that I hope will get back to prudential banking and be able to lend to customers. I hope we can dispose of the banks in time and recover the taxpayers' investment.
I welcome the Minister of State, Deputy Brian Hayes. The level of arrogance displayed by the banking industry, especially in recent days, continues. It need hardly surprise us. Since the meeting between the Tánaiste, the Taoiseach and the banking industry, AIB has said it will pass on the standard variable rate cut. That is welcome, but Bank of Ireland is a different problem. There is a clear obligation on the banking industry to take responsibility for the recklessness in which it has engaged that has led us to the current position. The nature of the obligation is contested. It is not legal but there must be some type of obligation which would go some way towards restoring confidence between the banks and their customers. Some of the reported practices of lenders in ensuring distressed borrowers continue to pay down their debt is particularly worrying. We hear stories of intimidation and harassment. We have already taken steps to address that. When the banks had an opportunity to restore the good will and good faith with their customers they spurned the chance to do so. It seems that they wish to remain as pariahs in society indefinitely. That does not seem to worry them.
Borrowers are being hit on the double. Not alone have some lenders refused to pass on the rate decrease; they seem to have increased rates on other types of household debt such as credit card debt and overdrafts. That is a serious worry. The immediate focus is on the passing on of interest rate cuts but we must consider it in the context of a wider debate about lenders and how they treat clients. We must deal with the issue and find a balance between how the banks protect their balance sheets and their responsibilities to their shareholders, which is important, but we must also bear in mind that one of the lenders is wholly owned by the State. We must ask whether it is desirable for the State to move to direct the bank to pursue a particular policy. I am not sure whether it is. It certainly would not be in normal times but these are not normal times. The deputy governor of the Central Bank appears to agree with that position.
We find ourselves in a circular argument that the banks must be healthy if we are to restore confidence in the banking sector and in order for credit to flow. That would seem sensible. It would suggest that we should not interfere but in order for confidence to be restored in society we must find a way to ensure that the banks wear the green jersey. We have heard reference to that often enough. We need to break the circle and however we do it, now is as good a time to start as any. The decisive action taken by the Tánaiste and the Taoiseach last week has been a small step in the right direction but I would welcome further developments in that regard. In normal times we would not contemplate such a course of action but these are not normal times. We have turned the markets on their heads and socialised private debt — the previous Government did so — and we find that the answer to capitalism is socialism. Perhaps now we should see the State intervene in some manner directly in the markets in this exceptional circumstance to force a confidence building exercise in our financial and societal situation.
I will try to be as brief as possible and merely ask some questions. Can the Minister of State tell us when the Government will act on the programme for Government commitments regarding mortgage debt relief and those in mortgage distress? We all know that hundreds of families fall into mortgage distress every week. We expect figures for the third quarter to show a significant increase in mortgage distress on the 100,000 reported in the second quarter. Only a few months ago, the Minister's party made a pre-election promise to increase mortgage interest relief for those in negative equity. The programme for Government promised to direct any mortgage provider in receipt of State support to present Government with a plan of how it intends to cut its costs over and above existing plans in a fair manner by a sufficient amount to forgo a 25 basis points increase on its variable mortgage rate. Throughout the country, hundreds of people are falling into serious mortgage debt. In view of that and in light of these interest rate cuts, can the Minister of State outline what other avenues may be pursued for the relief of mortgage distress?
The report of the interdepartmental working group on mortgage arrears chaired by Mr. Declan Keane was a disappointment to these families. It did not come close enough to a comprehensive solution to the issue of mortgage distress. Even after all that has happened in the State, it is remarkable that the main conclusion of the three reports produced in the past three years has been to leave it to the banks to fix the problem.
The Minister of State said the Central Bank is requiring mortgage arrears resolution strategies from all lenders by the end of this month. What role will the Minister of State have in assessing these strategies? Who else will be involved in assessing them? More important, will there be a tie-in with organisations such as the money advice and budgeting service, MABS, on these strategies and their practical application?
I welcome the Minister of State. The European Central Bank lowered its interest rate in order that banks could pass it on and not pocket it. That is one statement. Another statement made is that banks will only be able to heal themselves and reduce their dependence on the State if they return to profitability. We are between a rock and a hard place. What is good for the goose, the borrowers, is good for the gander, the depositors.
Some banks operating in Ireland are not eurozone banks. Danske Bank, for example, gets its money from Denmark and is outside the eurozone altogether. Would it not be difficult for the Government to introduce regulation for one bank while foreign banks operating in Ireland are not governed by that regulation because they do not get money from Ireland and are outside the eurozone?
I would like to see a strengthening of regulation. Has the Minister of State any intention of strengthening the role of the Competition Authority? Another Senator referred to the role of this authority. I would like to see guidelines put to the Competition Authority, as well as supervisory interventions, written on paper, which the authority could put into effect. Does the Minister of State have any proposals to do that?
I apologise if I took too much time for the debate. I did not want to prevent colleagues from speaking.
In a nutshell, we all want to get our money back from these banks. That is the objective of the exercise. Senators are aware of the proposal in the programme for Government to raise €2 billion from the sale of non-strategic State assets. If we were to get back even 20% of what we have put into the banks over the past three years, we would be talking about €15 billion or €20 billion. The objective of the exercise, for a period of years, is to get back one third or half the money we put into the banks. That will become the new pension reserve fund and the stimulus for the future. We all want that.
I was struck by the temperate language used by all sides in the debate. A balance must be struck. Some 50% of all mortgages in Ireland are from mortgage companies that are not covered by the guarantee. They have their bases in other countries and are not being propped up by the ECB or by our funds. We have a Common Market, not only in goods and services but also in this area. There are EU competition rules and before any intervention is made, we must make it clear that it is consistent with the Common Market and with our need to get our banks going again so that we can get our money back.
We are in extraordinary circumstances. To reflect that, the Government has taken a strong view that these rate reductions need to be passed on. The deputy governor of the Central Bank is clearly not looking for legislative powers as of now. He has spoken about a regulatory framework. A number of Senators asked what else can be done. The Central Bank (Supervision and Enforcement) Bill 2011, currently before the Houses, provides for the strengthening of the ability of the Central Bank to police, investigate and punish malpractice when it comes to consumer protection. To answer Senator Keane's question, we have new powers which will be in place in a short number of weeks and months. They will allow greater intervention by the Central Bank and impose a much more serious financial penalty on banks where there are clear breaches of consumer practice. Consumer practice is the area we need to get to.
The point was made, I think by Senator Walsh, that we should publish the letter from the Financial Regulator. The letter was to the Taoiseach and not to me, so I cannot speak on his behalf. It is a matter for the Taoiseach. However, I think the Minister for Finance accurately reflected the points made by the deputy governor in his very quick response to the issues.
Senator Reilly raised the question of mortgage interest relief. This is an important issue for my own and other parties. I am proud of the commitment in the programme for Government. We gave a clear commitment before the recent general election that those who bought mortgages at the top of the market, between 2004 and 2008, and who are most indebted and in greatest negative equity should have some additional help through the taxation system. We suggested doing this by ending the provision to first-time buyers, because they bought in different circumstances. The stamp duty has changed, the market has collapsed and those buyers are getting better value. That is still my view and the Government's view. It is in the programme for Government. However, it can only come about in the context of a finance Bill. We wait with eager anticipation for what the Minister for Finance will say on budget day. This is a live and significant issue. We have a social responsibility for people who bought at the top of the boom. We should use the taxation system to help them in this really difficult time, assuming they can pay back some of their mortgage at present.
Senator Reilly and other colleagues asked about the implementation of the recommendations in the Keane report. The Minister for Finance made it clear that he is bringing forward a co-ordinated implementation plan, including some of the measures recommended in the Keane report as well as other measures which were reflected in both Houses. We had very good debates in this House, in the Dáil and at the joint committee when a number of suggestions were brought into the debate. We need to follow up on those suggestions and we will do so. I welcome Senator Thomas Byrne's promise to bring forward new legislation. The Government will look at any proposal in this area, and not from a party political or partisan view. We want every Member of the Oireachtas — Senators and Deputies, party and non-party — to contribute to this. I say this genuinely and not as some kind of patronising response. I hope good ideas will come out of this. The Government is going through the debates in both Houses on the Keane report to see what additional measures can be brought to bear.
The biggest measure that would help the problem of mortgage indebtedness would be the radical alteration of the existing legislative framework for personal insolvency where people are put into a financial cold room for a period of 12 years, when the equivalent period in the UK is, in some cases, only one year. We need to make progress in this matter. It is under active consideration by the Government. We know it is the significant stick, as Senator D'Arcy said, that can be used in the commercial courts and elsewhere where persons who have a personal or commercial mortgage can attempt to get some realistic write-down of their debt.
When the banks were recapitalised — they are now more capitalised than Swiss banks in terms of the tier capital ratio — the money was put in for the purpose of allowing write-downs to occur. We have been saying clearly to the Minister for Finance and to the banking unit within the Department of Finance that they need to get on with the task. That was part and parcel of the meeting that occurred last week between the Taoiseach, the Tánaiste and the banks in question. We must get on with this, but there is no perfect solution. Ultimately, a number of different solutions will be found. The Government endorsed the Keane report which was brought to the House by the former Minister, Deputy Penrose, on the day the report was published. Its first recommendation is now being tested in a pilot scheme. Case by case, proposal by proposal and pilot scheme by pilot scheme, we will get there. We look for the support of the House, which I know we have, in bringing those measures forward. The objective of this exercise is to ensure that the burden of debt, not just to the State but to individuals in the State, is lessened over time. The recalibration of our economy depends on the resuscitation of the Irish banking sector after this enormous collapse. The banks have been recapitalised and the taxpayer has taken an enormous hit to ensure that we have a proper functioning banking system as the engine of our economy. Without that, we will not return to the levels of growth required to sustain the economy. That is our objective and the support this House can give to the Government's efforts is very much appreciated. I expect I will be back here on this issue again and rightly so, because it is an issue of huge concern.
Senator Walsh raised the issue of the Custom House Capital. I will follow up on that issue. I understand the matter is being investigated currently by the regulator and do not feel it would be appropriate for me to comment on it at this stage. However, I will follow up on the issue and will send any further information to the Senator. The Senator is right with regard to the publication of the costs of funds. When we put this to the banks in the past, they said the information was commercially sensitive and publication removed their competitive advantage. We need to have a competitive banking system and do not want a duopoly. Senator Barrett made the point previously that we need a banking system that works and that is made up of international and local lenders. However, there is merit in having a much greater degree of transparency with regard to the distinction between the rate at which the banks borrow and lend the money. I agree with the Senator in that regard. The letter in question was sent to the Taoiseach and, consequently, I cannot say whether it will be published, but I will raise the matter with him.
A number of Senators raised the question of whether we have the appropriate staff in place. I understand from my officials that close to 1,500 people are currently employed within the Central Bank across all of the regulatory frameworks that have been established since the collapse occurred. We are confident that they have the expertise required to have a strong, robust ——
They are the same people who were there when quality was missing. We are looking for quality, rather than quantity.
We have new regulators. They are accountable to Government and to the Houses of the Oireachtas. The people who serve under those regulators are responsible for the performance of the tasks.
As I mentioned in the context of the Keane report, the Minister is working out a comprehensive implementation plan, which will be announced in due course. When it comes to the Consumer Credit Act, interest is set on a commercial basis and the regulator will be given powers, if they are required, to deal with issues. As he said in his correspondence, it is his view that legislation is not required at this stage, but that may change. When, on his first day in office, the president of the ECB took the bold but correct step to reduce the ECB basic rate by 25 basis points, that sent a signal to domestic economies across the eurozone. He added that he intended to reduce the rate further over the course of the next few months. This issue should not just arise when the ECB reduces its rate. We need a clear plan in place with the banks and they need to listen to the Government and to the people. I understand that they want to be profitable, sustainable banks again and that the profile of their lending books bank to bank is different. Much of the mistake made in the past was to go after the aggressive model of banking, which was not sustainable in the long run. As the banks try to resuscitate a more sustainable model, the Government, on behalf of the taxpayers and citizens, has a responsibility to resuscitate the economy. The way to do that is to hand on ECB rate reductions.
I thank colleagues for their constructive remarks, but I expect we will return to this issue in due course.
I suggest to the Acting Leader given that we have six or seven minutes left, that we could use that time to put a few short questions to the Minister of State, if he agrees. I have one or two concise questions if the Acting Leader agrees.
Agreed.
I thank the Minister of State. I am aware of the challenges facing him and the Minister in trying to rectify the situation. I have three specific questions. I understand that in his letter, the deputy governor mentioned supervisory intervention as, perhaps, an effective, alternative modus operandi at this stage, whereby they would audit the loan books of the banks and try to identify those that are overcharging. Will the Minister of State comment on that? The banks hide behind unpublished rates. In many instances, that is bona fide, but in some it is a way to exploit and “defraud” — I use that word advisedly — some of their customers. We need to be careful that does not happen.
The margin is the issue. Given that we do not have a competitive banking system currently and probably will not have for several years, would the Department consider setting a maximum margin by which the banks can charge? They would be able to compete within that, but would not be able to go beyond that level. Would it also consider putting a provision in place for distressed borrowers who find themselves in breach of their loan agreement preventing the banks from charging them penalty interest rates. Such rates only make a bad situation worse and place clients in dire difficulties.
My final query relates to management practices and has more to do with the flow of funds and credit to consumers. Increasingly, people in the business sector dealing with banks have difficulties. In the past, they went in and dealt with their local bank manager who knew them and their integrity and business, but now everything goes to Dublin and is decided there. This means decisions are taken clinically, without due regard to the quality of the customer.
The banks have their own ideas with regard to the loan books. Evidence given before the Oireachtas Joint Committee on Finance, Public Expenditure and Reform in respect of the two pillar banks showed that to date, Bank of Ireland had written down the mortgage loan book zero this year. AIB, which had a larger mortgage loan book than Bank of Ireland had only written down €600,000. The two banks are not participating in writing down the mortgage loan book although the funds were put in place to allow them be written down. This is belligerence by the banks towards their clients. I suggest this matter be raised. We need some movement on this issue immediately, whether via the Minister for Finance, the regulator or the Governor of the Central Bank.
The level of bilateral discussion between the Department and the banks, whether pillar or non-pillar banks, is extensive. It is only right that I should say that the new banking unit within the Department of Finance has been significantly beefed up to have that engagement. Much of that engagement is across table, through negotiation and is attempting to move on the model. In February 2011, the Central Bank informed lenders that they should allow 30 days notice to be given in advance of any standard variable rate mortgage increases. This is now being introduced as part of the revised code. The code is important and consumers need to be aware of the fundamental rights it contains. Where banks breach the code, we need to be aware of it because they have signed up to implementing it. The question is whether this is happening.
Senator Walsh asked about additional supervisory powers. The deputy governor's opinion is that he does not need further legislation and his existing powers suffice, but he will use greater persuasive techniques and determine whether progress can be made. If further measures are required at the end of that process, he will report to the Government. This is his firm opinion.
Regarding margins, I was asked whether a maximum rate could be set. I will find additional information. If there is to be competition, various banks need to be in place. The nature of competition is choice. EU rules are in place in terms of the setting of maximum rates, but I am unaware as to whether we have the power to set them. One might persuasively argue that, given our current circumstances and the fact that the banks are coming out of a resuscitation period, maximum rates might be to the advantage of the economy. However, Community rules are in place regardless of what circumstances we face and irrespective of recapitalisation. I will consider this matter to determine what additional measures can be taken.
On the commercial side, I recently heard a lovely phrase, in that all banks need to have a "relationship manager" with all of their customers, be they commercial or non-commercial. I am unsure what this means, but the Senator is correct. The dilemma is that, because the banks are in this position, they have strict lending practices from the centre. It seems to be the case that local banks do not have the discretion to make those decisions, yet the objective of a local banking system is that staff know people locally, their ability to repay, their business models, their plans, etc. For many years, the main crisis in the banking system was the dreadful surge of money from the centre that effectively took out of existence local commonsensical people, for example, bank managers. I would describe them as the Arthur Lowes of the "Dad's Army" generation, those who knew people locally, knew the community's circumstances and were prepared to make decisions. We need to return to a model of banking in which there is a stronger connection between the bank and its community, akin to the credit union model, where people know what is occurring and have confidence in the decisions they are making. We will not get out of this crisis or be able to reboot the economy and put the €30 billion promised to us into the system unless local banks can make these decisions. We need to free up this lending process. The Government is in discussions with the banks and the regulator as to what we can do to help that process.
I note Senator Michael D'Arcy's comments about the failure of the write-down. We will see if we can get additional information so that there can be some transparency in the banks. There is no point in us asking for confidence and saying something is happening if it is not.
It is movement that is being sought.
There needs to be a transparent system to show what has been written down, how much of the capitalised money has been used and——
I must ask the Minister of State to conclude. When is it proposed to sit again?
Tomorrow, at 10.30 a.m.