Fianna Fail in bid to curb banks' rate-setting power
FIANNA Fail is preparing to bring forward private members' legislation within "weeks" that would empower the Central Bank to curb banks' abilities to set their own interest rates, the party's finance spokesman confirmed last night.
But there is no consensus at this point on the shape of legislation that would secure lower interest rates for consumers without infringing on competition law or making the Irish banking market unattractive.
The news comes days after the three biggest banks -- AIB, Ulster Bank and Bank of Ireland -- rejected requests from the Government to pass on last week's interest rate cuts to mortgage holders. AIB relented and cut its rate by 0.25pc last night.
Tanaiste Eamon Gilmore yesterday called on the banks to "reconsider" their position. The Taoiseach's office has been in contact with the Central Bank about possible legislative remedies that would compel the banks to act; a spokeswoman for the bank last night declined to comment on those talks or potential remedies.
"We'll certainly be bringing forward legislation ourselves within the next week or two to assist the Central Bank," said Fianna Fail finance spokesman Michael McGrath. "We're working on it now." Mr McGrath declined to be drawn on what shape the legislation might take, but said he would "look into" models used in other countries.
Examples include setting higher capital thresholds for banks that insist on charging higher interest rates, to cover the risk of higher default levels, as well as simple rate caps.
The Irish Independent understands that banks pitched for a link between interest rates and capital before, when they asked the Central Bank to control the deposits war by requiring banks who paid uneconomic rates to stump up more capital.
The Irish Independent understands that it was turned down by the Central Bank.
Mr McGrath stressed that any new powers to prevent banks from over-charging borrowers would have to be "put on a statutory basis" so the banks would "have no choice" about compliance and would face punishment if they didn't.