Thursday 25 April 2019

Lane warns vulture fund law would push up rates

Philip Lane
Philip Lane
Charlie Weston

Charlie Weston

CENTRAL Bank Governor Philip Lane is to tell politicians that legislation to regulate the sale of mortgages to vulture funds will push up interest rates on home loans.

Professor Lane is set to tell the Oireachtas Finance Committee the Central Bank has "grave concerns" about the No Consent, No Sale bill which, he maintains, will not give any extra protection to consumers whose loans are being sold.

The bill has been promoted by Sinn Féin's Pearse Doherty and would require the specific consent of a borrower before the sale of a mortgage to a third party. The Dáil has voted in favour of the bill after it was supported by Fianna Fáil.

But Prof Lane is set to tell the committee the "bill would not add any extra degree of regulatory protection for consumers".

At the same time it would damage the ability of banks to raise funds off the back of a package of mortgages, known as securisation. This, in turn, would raise interest rates charged to households, he is set to say in his opening remarks to the TDs and senators.

This is the first time the Central Bank has commented publicly on the bill, although it was known to have reservations about the proposed legislation. "While these restrictions would be costly even under normal conditions and thereby raise the interest rates charged to households, their impact would be especially destabilising in a crisis environment, since the ability to restructure balance sheets and tap liquidity is essential to resilience under crisis conditions," Prof Lane is set to say.

The bill makes an exception for a bank that is "failing or likely to fail". But this will only apply once a crisis is well advanced, Prof Lane says in his remarks.

The Department of Finance has also warned that the bill could trigger unintended consequences, such as an increase in interest rates. This is because an inability to carry out securisations will mean banks will find it more expensive to raise funds on the wholesale markets.

If passed, the bill would effectively rule out loan sales from the State's banks.

Although hugely controversial and unpopular, these loan sales are seen as a key tool being used by banks to reduce the high levels of non-performing debts on their books.

A number of banks are known to be planning loan sales, as part of their attempts to meet regulatory requirements to cut their high levels of non-performing loans.

Permanent TSB sold owner-occupier loans last year and the State, which has a majority stake in the bank, did not block the controversial sale.

Irish Independent

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