Central Bank could cap mortgage rates under FF plan
Published 29/12/2015 | 02:30
The Central Bank would be given the power to cap banks' standard variable mortgage rates under Fianna Fáil plans.
The party presented the plan yesterday as part of its strategy to increase competition in the banking sector.
It wants to encourage more banks to have a retail presence here, but giving regulators the power to cap rates could be seen as a deterrent.
Finance Minister Michael Noonan has previously said that allowing the Central Bank to determine variable rates would "kill the market".
But Fianna Fáil said Central Bank action would only be needed where "the evidence points to a clear market failure".
"Fianna Fáil accepts that the preferred outcome would be that the exorbitant variable mortgage rates being charged would be resolved by competition in the banking sector," the party's finance spokesman, Michael McGrath, told the Irish Independent.
"But there is no sign of that happening at the moment and so we believe that these powers should be put on the statute books and invoked by the Central Bank if necessary in circumstances where there is a market failure," he added.
Mr McGrath said current market conditions would constitute a "market failure" as envisaged by his party in its plan. Variable rates charged here have been well above the Eurozone average and a major source of controversy this year.
"The legislation we are proposing is balanced between the obvious need for banks to be profitable and the rights of consumers to be treated fairly," Fianna Fáil said.
"The Central Bank would be given responsibility for monitoring the level of competition in the mortgage market and the fairness of rates charged.
"This would act as a strong deterrent to banks from charging excessive rates... it would empower the Central Bank with a range of tools, including interest rate caps, to influence the standard variable rates charged," it added.
The party also said it would consider selling off EBS - the building society that was folded into AIB during the financial crisis - separately from the rest of AIB, with EBS becoming a mortgage bank.
Mr McGrath said his party would use the IDA to encourage foreign banks to provide retail services here.
"I think the priority would be for the IDA, on behalf of the Department of Finance, to provide a detailed profile of the Irish market, of the manner in which competition has shrunk so dramatically in the last number of years in the Irish banking sector.
"Essentially an unhealthy proportion of the market is now concentrated in the hands of the two largest players (Bank of Ireland and AIB)," he said.
"And because foreign operators who came into Ireland in the 1990s got badly burned when the financial crisis hit the country in 2008 and subsequently departed our shores, there will be a reluctance to look at Ireland again to provide banking services.
"So I think there is a job of work to be done to explain that the economy is in recovery mode and that there is a dearth of competition currently in the banking system here, and an undoubted opportunity for foreign providers to come in and provide retail banking services on a profitable basis in this country.
Mr McGrath's party also reiterated its plan to establish a State Enterprise Bank - to remain in State ownership - that would lend to any company deemed creditworthy.