Elderfield 'chickening out on bank rate cuts and should step aside'
FINANCIAL Regulator Matthew Elderfield "should step aside" if he is not prepared to take a tougher stance with banks hitting mortgage borrowers with sky-high interest rates.
Mr Elderfield was accused last night by a consumers' representative of "chickening out" after he wrote to the Government saying he did not want the powers to order lenders to lower interest rates for homeowners.
Following his climbdown, Finance Minister Michael Noonan will answer questions in the Dail today about the Government's approach to banks that fail to pass on interest rate reductions.
Consumers' Association of Ireland chairman Michael Kilcoyne last night accused the Central Bank regulator of "chickening out". "His job is to regulate and to look after consumers. If he has a problem with that, he should step aside. He is chickening out by not seeking additional powers to regulate interest rates," he said.
Last month Mr Elderfield warned that new rules would be imposed if high mortgage rates were found to be pushing people into arrears.
The Government rowed in behind him, offering to pass new laws to provide him with tough powers over the banks.
But after saying it would legislate to give the Central Bank the power to stop mortgage lenders overcharging borrowers, it has now been forced into an embarrassing retreat.
Mr Elderfield has backtracked from his earlier comments and wrote to Taoiseach Enda Kenny saying he did not want to be able to control mortgage interest rates.
The row erupted after Ulster Bank and Bank of Ireland failed to pass on this month's reduction in European Central Bank (ECB) rates to variable rate customers, despite being asked to do so in a meeting with senior ministers last week.
AIB, however, relented eventually and cut its variable rate even though it did not hike it earlier this year when the ECB rate went up twice.
Permanent TSB has the most expensive variable rate at 5.44pc while Ulster Bank has the second highest at almost 5pc. In contrast, most tracker rates are around 2.25pc.
Mr Elderfield's letter to Mr Kenny says: "The Central Bank is not seeking the power to exercise close regulatory control over retail interest rates at this time given this could absolve banks of their responsibility to price risk accurately."
In October Mr Elderfield said: "If the banks continue to act in a way which is so damaging to customers and which appears to take advantage of the current dysfunctional competitive environment, it seems they are courting the risk of a public policy response involving powers to impose direct restrictions on their rate setting capacity by the competition or financial regulatory authorities." Mr Kenny responded to the speech saying that if the regulator came to the Government seeking assistance, he would "certainly be prepared to engage with him with a view to increasing his powers of authority".
Mr Elderfield's deputy Jonathan McMahon yesterday dismissed the idea that the Central Bank should have a role in telling banks to lower mortgage rates.
"We can think of lots of very good reasons why regulation of interest rates would not be a good policy outcome. Much better could be done through the process of supervisory interventions."
This is understood to be a threat to send in Central Bank inspectors to carry out audits of the loan books of banks that are seen to be overcharging variable rate customers.