The new Government looks to take a more interventionist approach to banking, looking for ways to pressure banks into cutting standard variable mortgage rates – and also pushing them into doing deals with those in mortgage arrears. Ministers will no doubt be delighted that AIB has announced a cut in its standard variable mortgage rate, allowing them to claim an early “victory”. Cynics will note that AIB is owned by the State – and speculate that it may just have seen the way the wind is blowing.
The reality is that the Government and the political system would be happy to see other banks follow AIB to avoid having to investigate other avenues to pressure the banks. The draft programme for government said the Consumer and Competition Commission would be asked to work with the Central Bank to see what could be done. And Fianna Fáil is to propose its own legislation.
But the two big parties would surely prefer the banks to make major interventions unnecessary by moving first. It may be difficult to achieve policy goals via legislation or regulation, and the State will want to protect the value of its AIB stake, the eventual recouping of which could significantly cut the overall cost of the bank bail-out.
The draft programme for government sends out mixed messages in terms of banking policy and the State’s longer-term intentions towards AIB. The Government will need to provide greater clarity. Investors will want to know does the State eventually plan to sell all of its shares, and also how the banking market will be regulated.
There is a bit of populism in the Government’s promises that it will do everything possible to get banks to cut mortgage rates, while also protecting those in arrears. Pragmatism will be needed, too. A competitive market is the best way to achieve low rates for borrowers, and some progress is being made here. There is no single solution to the arrears crisis, though few would dispute that new approaches are needed. And then there is the proposal to float off 25 per cent of AIB. There is a lot to balance here for the new Government and Minister for Finance Michael Noonan.