Noonan will not urge legislation over mortgages

MINISTER FOR Finance Michael Noonan does not intend to recommend the introduction of emergency legislation to force financial institutions to cut mortgage interest rates in line with European Central Bank reductions.

He confirmed Financial Regulator Matthew Elderfield was not seeking additional powers. He “prefers to use the powers he has, together with his powers of persuasion, which are considerable, to affect the interest rate”.

Mr Noonan told Sinn Féin finance spokesman Pearse Doherty that all financial institutions involved in mortgages have passed on the recent ECB interest rate reduction, with the exception of the Bank of Ireland and Ulster Bank.

Mr Noonan said: “We hope Bank of Ireland and Ulster Bank will do what their peers have done and pass on the interest rate cut, and consequently comply with ECB and Government policy.”

Ulster Bank was a subsidiary of the Royal Bank of Scotland, he said, and a lot of its funding came through sterling and the Bank of England, although it does access funds through the ECB and the State now only owns 15 per cent of Bank of Ireland.

Explaining his decision not to introduce emergency legislation, Mr Noonan said that “binding controls tend to reduce availability of credit and channel it to the most creditworthy customers, starving smaller and less secure customers from credit”.

Mr Elderfield indicated in his report that it “could have a chilling effect on the entry of sound competitors into the market”.

The Minister added that if banks were absolved of their responsibility to price risk accurately, binding interest rates controls would impede the development of practices that “can ensure a healthy and free-standing banking system no longer dependent on the Government for bailouts”.

Mr Doherty called on the Minister to introduce legislation to reduce rates, regardless of whether the regulator sought additional powers.

He said the Bank of Ireland’s chief executive “rubbed the noses of the Government in it when he was invited to a meeting with the Taoiseach”.

Mr Doherty asked if the Minister was “going to do nothing about it”.

Mr Noonan replied: “Sinn Féin historically has a different approach to getting people to do what it wants them to do than our party would have.”

He said the Financial Regulator was independent in the exercise of his functions and the Government would continue its contact with him.

“He has a range of powers at his disposal.” The Government “will see how the situation develops over the coming weeks”, Mr Noonan said.

Later when Sinn Féin leader Gerry Adams raised the issue with the Taoiseach and asked what the Government was going to do, Enda Kenny said he was very disappointed the two banks had not passed on the reduction.

The ECB reduced interest rates to stimulate economic activity, to provide an opportunity for further investment, to help people who are in difficulty and “not to have banks make a capital increase from it.

“This is ECB policy and I expected that banks would follow ECB policy.”