PMB Interest Rates 31 March 2015


Thank you for the opportunity to speak on this motion.

Encouraging more competition in the banking sector is a key priority in the remaining term of this Government and recent interaction with constituents in county Galway has brought home to me the difficulties faced by individuals and families across the state as a result of the lack of competition in the Irish banking sector.

The rate at which banks have been getting loans from the European Central Bank has fallen consistently in the past three years to its current unprecedented levels, yet rather than enjoying the fruits of lower interest rates, many already hard-pressed families find that the banks’ sole focus is on restoring profitability and so the significant savings which should accrue as a result of the low ECB rates is not being passed on to families and individuals with mortgages.

For example, I have been contacted by one individual who is in negative equity and cannot sell his home and who in incensed at the fact that he is being charged 4.5% in standard variable rate, while the ECB rates were at almost negligible levels.

There has been a slight reduction in the Standard Variable Rate offered by most banks for new customers and I’m glad to note that in the case of AIB, all Standard Variable Rate customers have benefited.

This is an issue that I have contacted Minister Noonan on in recent weeks, and while I acknowledge that the interest rates charged are a commercial decision made by the institutions concerned, I believe that there may be other options open to the Government to ensure that banks other than AIB, pass the interest rate cuts on to customers.

The interest rate cut by the ECB was and is an effort to inject economic lifeblood into the economies of Europe and while that objective is commendable, I believe that it is not the ECB’s intention to inject that lifeblood into commercial banks, but rather into national economies, which will result in a more confident economic outlook, which in turn will increase consumer confidence and spending. However, I believe that the ECB should seek to invert the economic pyramid and give the money to people and families, even if that money in turn had to be used to pay down debts, which would have the dual effect of boosting the economic viability of families floundering under a sea of debt, while also benefiting the banks’ balance sheets.

Forcing banks to reduce variable rates would discourage new entrants into the Irish banking market, which would perpetuate the problems that already exist. However, I believe that real consideration should be given to inverting the point at which the ECB money is injected into economies, to ensure that it benefits people first and institutions later. Banks vying to have their customers avail of such opportunities would be more likely to advance innovative solutions for their customers. The current situation means that banks do not have to work hard to access funds at a rate that most Irish mortgage holders can only dream of.

I also welcome the establishment of the Strategic Banking Corporation of Ireland and the Credit Guarantee Scheme. Recent announcements of funding being made available to farmers and rural development organisations under the Rural Development Programme brings to mind the formation of the Agricultural Credit Corporation and the investment that it prompted on Irish farms in the 20th century, investment needed to meet rising environmental and animal husbandry standards and changing harvesting patterns and I look forward to further such funds being made available to ensure that the farming sector can again keep abreast of developments in 21st century farming.

I believe that we need to look at very innovative ways of ensuring that banks are not the sole beneficiaries of historically low interest rates. Returning commercial entities to profitability at the expense of ordinary families is not what this government is about. New entrants will have to be brought into the Irish banking market, but I believe that we should also examine European-wide mechanisms for ensuring that benefits of low-cost money from the European Central Bank benefits people and families across the continent.