Plans to hike bank levy now 'dead in water'
Published 02/05/2015 | 02:30
Plans to impose levy hikes on banks refusing to cut standard variable mortgage interests rates are "dead in the water" despite threats from Tánaiste Joan Burton, according to Department of Finance sources.
Ms Burton launched a fresh attack on the banks yesterday and accused bankers who did not cut rates of "suffering from memory loss".
"It is possible to explore avenues where we would have a look at the banks' profits - already there is a bank levy there - we can explore various options going down the road," she said.
However, last night, a senior Department of Finance source insisted the Government would not be increasing the bank levy to force banks to cut rates.
"It's not something that is being considered as a tool to force banks to cut the rates. The political system is not responsible for setting the level of interest rates and nor should it," the source said.
It comes as Central Bank Governor Patrick Honohan warned any attempt to force banks to cut rates could damage competition from entering the market.
"We don't have enough competition in the banking system now. I think we will have more competition in the future. These are long-term contracts. I think it's more important for now and in the future to have the overall regime right and not having somebody poking around and saying do this and do that.
"You may end up in a situation where you will have driven away the potential competitors and will be left with progressively high cost and poor services for customers."
The Central Bank is preparing a report on the fairness of the current rates being imposed by the banks, which will be presented to Finance Minister Michael Noonan shortly.
Meanwhile, homeowners have been urged to engage in a mass campaign of mortgage switching to force banks to cut punitive variable rates.
The move to get 80,000 people to switch represents a dramatic escalation in the campaign to push banks to treat those on variables fairly.
AIB, and its subsidiaries EBS and Haven, announced cuts in standard variable rates by between 0.25pc and 0.38pc from early June. The cuts will apply to new and existing customers, and save a family on a €200,000 mortgage over 25 years around €330 a year.
Bank of Ireland and Ulster Bank refused to commit to cutting rates this week.
Consumer advocate Brendan Burgess advised variable rate customers not to sign up for fixed rates.
"People should not fix, because variable rates will fall further." But he added that banks will need to be forced to drop rates.
"People need to get off their rear ends. Now is the time to switch. There should be a mass campaign of switching."
He said this was the only way to force down high variable rates.
Around 150,000 of those with a variable rate are in positive equity - they owe less than their property is worth - and could switch. If enough people do this, banks will be left with no option but to implement sharp reductions in the sky-high variable rates, Mr Burgess said.