Repossessions desirable from social point of view, says Lane
Central Bank governor also tells of 'behaviour and culture' audits of five mortgage banks
The Governor of the Central Bank has insisted that home repossessions must be regarded as a normal and even socially desirable consequence of the lending market.
In comments that will be seen as a possible signal to lenders, Philip Lane said repossession should always be a last resort for, but has to be among the options for tackling unpaid debt.
The Central Bank chief made the comments at a meeting of the Institute for International and European Affairs in Dublin, where he'd earlier delivered a wide-ranging speech on the Irish and world economy.
"It remains the case that it remains the foundation of mortgage lending that if all other avenues fail then the ability to repossess the house has to be part of the options.
"So I don't advocate this as a solution, but the idea that repossession should never happen, that cannot be, either."
If lenders cannot repossess, the cost of debt will reflect that extra risk, he said.
"It should be viewed as part of a normal functioning mortgage market and if that is impossible then the answer is going to be much more expensive mortgages.
"From a social point of view it is desirable that the option to repossess is there as a last resort," he said.
Protections are in place for borrowers in financial difficulty, to help keep them in their home, but a balance is needed, he said.
"It's a question - that many people who look have: What is the balance between making sure than those who are in arrears are given plenty of opportunities to come up with an agreement with their bank verses when no other option remains available, or if there is no engagement from the person effected that the court does enable a bank to move to the final option?
"When all else has failed, will the Irish system prove to be sufficiently effective in enabling repossessions to happen?"
The comments are likely to spark a backlash from debt campaigners, but were made in the context of a drive by regulators to reduce the stock of bad loans held by banks.
A sale of €4bn of its loans by Permanent TSB as part of that drive has proved controversial. Prof Lane said regulators have no preference for how bad loans are reduced - including sales, debt write offs or repossessions, but want to see balance sheets repaired while the economy is doing well.
In relation to possible delinquent behaviour by banks themselves, Prof Lane said the Central Bank is undertaking what it called "behaviour and culture" audits of each of the five main mortgage banks and will report the findings to the Finance Minister in June.
Prof Lane said action could be taken, including imposing new conditions on errant lenders on the back of the probes, launched in the wake of the tracker mortgage scandal.
The reviews are into AIB, Bank if Ireland, KBC, Permanent TSB and Ulster Bank, he said.
In a barely veiled threat, the regulator noted that US bank Wells Fargo has been blocked by authorities in the States from growing until it addresses consumers protection failures.
In his speech, Prof Lane gave a guarded backing to the Ireland 2040 National Development Plan.
Fiscal prudence can be reconciled with ambitious fiscal plans, he said.
But he said that would require trade-offs, especially as unemployment drops.
In terms of the proposed National Development Plan he welcomed the fact it is to be introduced on a phased basis and won't mean surges in spending.
Meanwhile, the board of the Central Bank is considering an end to the printing of euro notes at its mint in Sandyford, Co Dublin.
Most notes used here come from elsewhere in the euro area, and the change would not affect supply of money into the economy.