AN ADVISER to the Taoiseach queried the Department of Finance about whether legislation was required to force lenders to pass on European Central Bank rate cuts given the level of financial support provided by the State to the banks.
The decision by some banks not to pass on the ECB’s interest rate cut in November and the subsequent public criticism led to a flurry of contacts between the Department of the Taoiseach, Department of Finance and the State-guaranteed banks.
One record released by the Department of Finance under the Freedom of Information Act shows the Taoiseach’s department asked how the Government might be able to force the guaranteed banks to pass on rate cuts.
“The Taoiseach is asking for a note on the current state of play with the Government-supported banks, which ones have passed on the ECB cut and which have not,” Paul O’Brien, special adviser to the Taoiseach, asked the Department of Finance in an email.
“Also, what powers, informal or otherwise, are available to the Government to force the Government-supported banks to pass on the interest rate reductions?
“Why would legislation be necessary given support of the taxpayer to some of the institutions?”
Another record shows that the Central Bank refused to provide the Department of the Taoiseach with details of interest rates charged by lenders before and after the November ECB rate cut.
The department was directed by the Central Bank to contact the lenders directly as it could not provide information on institutions.
Records show that information on interest rates was subsequently gathered by the Department of Finance from each of the lenders.
The department asked the banks for a three-year record showing responses to ECB rate changes and details of the impact of the changes on their funding.
The Central Bank said last November it did not have powers to force banks to change variable rates but warned that lenders could face new “rate-setting” regulations if they continued raising interest rates beyond their cost of funds.
State-controlled Permanent TSB, EBS and Irish Bank Resolution Corporation, which manages Irish Nationwide mortgages, passed the ECB’s November rate cut on to customers on standard variable interest rates, but Bank of Ireland and AIB refused to. AIB, which had not passed on earlier rate increases, subsequently cut standard variable rates after caving in to Government pressure.
