It's time to get tough with banks
Published 10/05/2015 | 02:30
The Government has talked tough on the banks in recent weeks, specifically on the need to cut the extortionate variable interest rates charged to around 300,000 mortgage holders.
The time for tough talking has ended - now is the time for action, if the banks refuse to see sense and cut rates in a meaningful way to boost the economic recovery underway.
Banks here continue to charge almost 2pc more for their product compared to similar mortgage products in the eurozone.
Interest rates for variable rate mortgage holders in the Republic are between 1pc and 1.5pc higher than for customers with the same banks in Northern Ireland.
The dysfunctional mortgage lending market is doing nothing to help the recovery of the country.
Effectively, variable mortgage holders are subsidising the banks for losses they are making on tracker mortgages.
But forcing the banks to cut mortgage rates would eat into the profits of those institutions and would make those still in the red even more unprofitable.
Allied Irish Bank, which has returned to profit, recently announced a meagre .25pc cut which, while welcome, does not go far enough. However, Bank of Ireland, Ulster Bank and Permanent TSB have ruled out any cut, despite pressure from the Government to do so.
Putting more cash in people's pockets would add momentum to the economic recovery. An interest rate cut would also, among other things, ease pressure for tax cuts and more Government spending.
High standard variable rates are also a significant cause of people falling into mortgage arrears in the first instance.
The Minister for Finance, Michael Noonan, has said he intends to dilute or end the bank veto on mortgage debt deals.
He has also applied pressure on the banks to cut the standard variable interest rate. "A series of reductions over a fixed time frame would be acceptable to me," he wrote in this newspaper last week.
Mr Noonan has also said he is prepared to introduce legislation to give the Central Bank control of variable mortgage interest rates.
But the Central Bank has traditionally resisted the idea of taking direct control of interest rates, arguing that this would hinder competition and the availability of credit. Instead, the bank prefers to rely on persuasion.
The time for persuasion has long passed. It should be abundantly clear by now that the banks are not open to such tactics.
If the banks continue to play hardball, then the time has come for the Government to play hardball back.
Last week, Fine Gael MEP Brian Hayes said that unless the banks indicate a willingness to reduce rates, a "special bank levy" to provide additional relief through the tax system should be introduced for variable rate mortgage holders.
There is merit in this proposal, but only if the cost of such a levy is not passed on to customers by the banks.
At a minimum, Mr Noonan should introduce legislation to allow the Central Bank regulate interest rates.
The banks have short memories. The taxpayers saved the banking system: €6bn of capital invested was to provide for losses on their mortgage book.
The time for tough talking has ended. The time for concrete action has now arrived.