Sunday 23 October 2016

ECB rate cut only adds to banks' tracker woes

Published 08/11/2013 | 02:00

For the 375,000 lucky homeowners who hold tracker mortgages, the news that the European Central Bank (ECB) has reduced interest rates to 0.25pc is an early Christmas present that should shave up to €30 a month off a €250,000 mortgage.

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But for the banks and the Government, this attempt to stimulate spending in the wider European economy only adds to a financial migraine that shows no sign of abating.

The state-owned AIB and Permanent TSB, as well as Bank of Ireland and Ulster Bank have roughly €70bn in tracker mortgages between them, accounting for about 66pc of the combined financial institutions mortgage loan books.

The banks borrowed the money during the boom at high interest rates to allow customers to buy property. But as the ECB interest rate dropped they began to lose money on the trackers, and with every percentage rate drop since, the big black hole the banks dug for themselves gets deeper.

Indeed mortgage holders are now segregated into two distinct groups, those with trackers and those without. Those on variable rate mortgages are now being punished by the financial institutions attempting to claw back as much as they can to compensate for the losses they are suffering on trackers.

Tracker mortgages are now the main stumbling block to the so-called 'zombie' banks actually getting back on their feet and functioning properly again.

The troika wanted the Government to come up with a solution to this black hole before its planned withdrawal from Ireland on December 15. But like health reform, the problem of tracker mortgages seems too big to tackle and nothing has yet happened. Indeed Finance Minister Michael Noonan has categorically ruled out taking unilateral action that would tax homeowners on trackers or in some way penalise them for the recurring losses suffered by the financial institutions, albeit due to their own venal stupidity.

For the Government the question will have to be faced sooner or later: what do we do with trackers? One solution is to hive them off into a separate entity much like NAMA, which would take them off the banks' balance sheets. This would allow the banks to begin functioning normally again.

The only other viable solution would be a second round of re-capitalising the banks. The troika don't want to stump up the billions needed for this and as they wave goodbye to Ireland they are also leaving behind a very big problem of our own making.



In this age of instant news, quality journalism is more important than ever. Apart from breaking news good journalism comes from reporters digging out stories and relaying them to their readers. The essence of a good story has been, and always will be, something that powerful interests do not want the general public to know.

In Ireland we have had no shortage of such stories over the years, in politics, banking, the church and other areas of public life. It is mostly through diligent journalism that a light was shone into these areas of Irish life.

It is important that the public's "right to know" remains of paramount importance in journalism, whether in newspapers or online. Yesterday the print industry honoured some of its brightest and best with the presentation of 21 NNI Journalism Awards in Dublin.

Each was merited for illuminating aspects of Irish life for newspaper readers and the wider community.

Special recognition for someone who touched all our hearts was meted out to Kerry teenager Donal Walsh, who in his dying days inspired the entire nation with his words and his courage. He was singled out as recipient of an award for his outstanding contribution to public debate.

A 'Celestial Tiger', his message, said Brendan O'Connor, was simple and clear, "to teach us to value what we have – when we have it".

Irish Independent

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