Saturday 3 December 2016

Lane says Central Bank is in many ways powerless - that's a great start then...

Published 07/02/2016 | 02:30

Prof Philip Lane of the Central Bank
Prof Philip Lane of the Central Bank

There is nothing the Central Bank can do about mortgage lenders ripping off their customers. And you'd be silly to even ask about it.

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It did not take Philip Lane long to get his feet under the governor's desk at the Central Bank before he explained this to us - and in the process began to sound just like his predecessor, Patrick Honohan.

Prof Lane told TDs and senators recently that his institution has no power to compel banks to end the two-tier market on mortgage variable rates.

He said interfering in the contracts between a lender and borrower was not possible.

Not even where banks were offering lower interest rates to new borrowers, compared with their existing customers, could he do anything.

He understood that it appeared unfair. But all he could offer was that he would look at ensuring the process for switching a mortgage to another lender is easier.

Calculations based on figures from the same Central Bank show that first-time buyers are paying €2,200 more a year for their mortgages than the equivalent in the rest of the eurozone.

That is because the average variable mortgage rate is almost 2pc higher here than the average in the euro currency area. New buyers here are charged an average of 3.96pc.

The equivalent euro rate is nearly half this, at 2.05pc.

But the Central Bank says it cannot do anything about this.

The idea that the regulators can dictate to financial institutions is a myth, you see.

Never mind the fact that the Central Bank does indeed dictate how things should be done in a whole raft of areas that impact on consumers.

It was recently admitted by the previous governor, in a letter to Finance Minister Michael Noonan, that general insurance companies had been told by his staff to increase their premiums.

Motor premiums rose by an average of 31pc in the past year - and are expected to keep rising, with past regulatory failure a feature of this mess.

From the start of this year, credit unions were told by the Central Bank that they cannot accept savings of more than €100,000 per member.

And the Central Bank was recently named the best in the world precisely because it now dictates to first-time buyers how big a deposit they need to get mortgage approval.

Let's not kid ourselves. The Central Bank can micro-manage when it wants to. Surely it must have the ability to make life very uncomfortable for banks engaged in outrageous variable-rate gouging? The fact that it has not is to its shame.

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