Coalition tensions grow over banks' refusal to cut rates
Tensions have emerged in the Coalition over how to force banks to cut interest rates for thousands of homeowners with standard variable-rate mortgages.
The Government this week came under pressure to address the mortgage crisis faced by 300,000 customers after two of the country's biggest banks refused to cut rates for struggling homeowners.
Both Taoiseach Enda Kenny and Tánaiste Joan Burton yesterday criticised the Bank of Ireland and Ulster Bank, and described their refusal to cut mortgage rates as "unacceptable".
But there are divisions at the heart of Government over how to resolve the stand-off.
The Tánaiste believes banks should be hit with increased levies if they refuse to "play ball" on variable interest rates, which are among the highest in Europe.
"The Tánaiste said there is an option there to be discussed and this is clearly one of these options, but it would have to be discussed in a budgetary context if the banks don't play ball by then," a senior source said.
"It would be a significant step and it would have to be discussed - plus there is no guarantee the Department of Finance will be open to the idea, since they want to sell the banks."
However, the Taoiseach and Finance Minister Michael Noonan are reluctant to threaten banks before receiving a crucial Central Bank report on variable-rate mortgages.
Last night, Mr Kenny refused to be drawn on whether banks who fail to pass on low interest rates to customers will be hit with higher levy charges.
He said Minister Noonan had requested a report from the Governor of the Central Bank on the structures banks had employed in terms of their lending rates.
"I would expect that when the Minister receives the report from the Central Bank that he will then call in the banks and see how that body of work sets out what should happen in terms of fairness and equity all round," he said.
Despite being pressed on the matter, the Taoiseach refused to say whether a hike in bank levies and taxes could be implemented if banks do not move to ease rates for borrowers.
But speaking in Galway yesterday, Mr Kenny said he didn't agree with the decison of banks not to pass on European Central Bank rate cuts to their mortgage customers.
"I don't think it's fair, I don't think it's morally correct for banks not to pass on interest reductions when they themselves are borrowing money at a much cheaper rate than they are lending it.
"I would make the point that it was the Irish taxpayer that has restructured the banks- and that restructuring and that capitalisation was made not in the banks' interest but in the people's interest," he added.
A Department of Finance source said there was concern about imposing levies on banks when the State was seeking to sell off their shares in AIB and Permanent TSB.
Mr Noonan is due to meet the country's six main banks in the coming weeks and he plans to use his "influence" to encourage them to reduce their rates.
However, there is a belief across Government that the banks will give in to market pressure and cut rates - but they do not want to be seen to bow to political pressure.
"The Government would be confident that the banks would see the value of reducing the rates in an increasingly competitive market," the Taoiseach's spokesman said last night.
Last week, at an Oireachtas Finance Committee hearing, AIB chief executive David Duffy pledged to reduce rates for customers. The State owns more than 90pc of the bank.
However, Bank of Ireland chief executive Richie Boucher and Ulster Bank chief executive Jim Brown refused to commit to cuts when they appeared before the committee this week.
Fianna Fáil has vowed to keep raising the mortgage rates issue in the Dáil until the Government intervenes.