Be careful what you wish for. CB powers under FF bill

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cremeegg

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The Irish economy was nearly destroyed in the 2000's by FF's populist approach. Early measures were well meant, tax incentives to develop rural towns, and student accommodation. We all know where that dose of populism lead us. The structures of the state were inadequate to protect us from the low interest rates that came with joining the euro.

A number of provisions have been introduced to protect the economy from political irresponsibility in the future. The tax base has been widened, there is enhanced oversight of the insurance industry, (no more owners borrowing against insurance company reserves to gamble on the stock market), and the banks. There are limits on bank lending for property purchase. After all it was property that nearly ruined us.

Now after 8 years of retrenchment the economy is recovering again. Certain people have lost out, unfairly in many cases. Those trapped on high variable rate mortgages are indeed in a difficult position through no fault of their own, although it is as a consequence of their own decisions.

Time for populism to make a comeback. Its first outing is lead by well meaning people in a good cause, but in 10 or 15 years time when we sit in the wreckage of Ireland's next bust wondering how we made the same mistakes all over again, this is where it started. The central bank is being undermined, the structures meant to protect us from undue economic exuberance are seen as obstacles to what we want. The first steps always look reasonable.
 
Good post (although I personally believe that it is appropriate to provide a degree of statutory protection for borrowers that are not in a position to refinance their loans).
 
Great post cremeegg.
Although I'd question how much the tax base has been widened.
-Water charges gone,
-LPT only raises €0.5bn p.a
-Labor & FG taking a million out of the USC.

All that has happened is they've heaped a load more income tax onto those who were already paying the most. So instead of being reliant on property related taxes ireland is now heavily reliant on a small portion of the working population.
 
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Just because something is populist doesn't mean its automatically wrong. I would suggest the central bank isn't being undermined. Rather its being forced to do do something, instead of sitting on its hands. Sitting on its hand its what got us here in the first place.

https://en.wikipedia.org/wiki/Irish_property_bubble

IMO There is no credible defence of the banks treatment of SVR holders.

That said FF track record speaks for itself. So its correct to be circumspect of their financial policies.
 
Richard Curran had an interesting article in the Sunday Independent that concluded that the FF bill was smart politics but bad economics:-

http://www.independent.ie/business/...mart-politics-but-bad-economics-34735973.html

"If the Central Bank does actually introduce a cap and forces rates down, banks will simply recoup the money elsewhere - from other kinds of customers.

One easy target is SMEs. A National Competitiveness Council report found that in November 2015, the interest rate charged by banks in Ireland on loans of up to €250,000 was more than 80pc above the euro area average rate for new business. The rate on loans of up to €1m was more than 60pc more expensive in Ireland.

The situation had actually got worse. Back in 2013, the report found that new business interest rates for non-financial corporations were 31pc higher here than in the euro area for loans up to €1m and 27pc higher for loans above €1m.

The squeeze would be applied elsewhere in the banking system. Excessive rates on SMEs would further stifle corporate borrowing, which in turn would undermine job creation and the economy's performance.

Fianna Fail is set to discover that what sometimes looks like an easy, popular solution, isn't in fact one at all."
 
Hi cremeegg

Why not criticize the proposal rather than attack the proposer?

All of the Irish political parties are populist. FG did not call for less spending and more taxation during FF's regime. So, using your logic, you must support the bill, as FG who oppose the bill are just as opportunist.

The Greens were in power with FF and they are the only party other than FG which opposes the bill. So again, you have to support the bill, if you make your decisions based on the history of the proposers or the opponents.

So all this shows that attacking the proposer doesn't really lead you anywhere.

Criticize the content. Come up with a better way to stop the lenders fleecing the borrowers. Or, if you think it's ok for banks to fleece borrowers, come straight out and say so.

Brendan
 
Sarenco said:
"If the Central Bank does actually introduce a cap and forces rates down, banks will simply recoup the money elsewhere - from other kinds of customers.
Click to expand...

Possibly, but not necessarily.

And would it be such a bad thing, if the entire banking base were asked to fund the profits of the lenders, rather than just the 300,000 non-tracker mortgage holders?

If Irish banks are inadequately capitalised, the shareholders should be told to capitalize them properly.

If a new lender enters the market, the justifications for the high Irish mortgage rates will fall away completely.

Brendan
 
Seems like the banks are squeezing everyone. Biting the hand that feeds them so to speak. Be that SVR holders or business and developers.
 
Banks are already squeezing outside the mortgage business. Has anyone tried to get a personal loan for home renovation, car, or similar?
The APR for those is between 7.5% and 11.5% or thereabouts, whilst you can get half of those rates on the continent.

Not that I am advocating to take on debt, but those rates are pretty much just saying "we do not want to lend you money".
 
Creemegg,

WHY Give the Central Bank a lot MORE regulation/power to Protect the Consumer.

1. When have the Central Bank ever protected the Consumer?
2. Is their remit not to re-protect their Banking friends.?

The UPSHOT will be that again Mr Consumer thinks Central Bank is their (friend) and in reality Central Bank will reprove their Bank friendly credentials.

( though in fairness this time Central Bank have clearly stated they will do nought with this bit of populist paper !)
 
I thought the idea is the CB regulates the banking industry to protect consumer and the economy. But its doesn't seem to do this. So I have no idea what it thinks its remit is, or what it actually does in practise. Ditto the regulator.

Likewise what FF and the CB say, and actually do, may not be one and the same.
 
newirishman said:
Banks are already squeezing outside the mortgage business. Has anyone tried to get a personal loan for home renovation, car, or similar?
The APR for those is between 7.5% and 11.5% or thereabouts, whilst you can get half of those rates on the continent.

Not that I am advocating to take on debt, but those rates are pretty much just saying "we do not want to lend you money".
Click to expand...

Banks in Ireland are still (bust) they do not readily have the money to lend, can I suggest can,t V want to lend ?
Personal loans are riskier products for them ,so should attract higher rates and a higher examination before granted.
Home renovation loans are still difficult in that too many home owners don,t have the free cash to service a renovation loan.
Car finance is now well covered by the plethora of finance packages available ( including the dangerous PCP option)

Maybe its no harm rates are higher than on Continent as it may protect us from our own stupidity?
 
Brendan Burgess said:
Criticize the content. Come up with a better way to stop the lenders fleecing the borrowers. Or, if you think it's ok for banks to fleece borrowers, come straight out and say so.
Click to expand...

Personally, I would like to see all people who comment on this in the media openly declare their position at the outset. Its very easy to say this is a silly bill if you have no mortgage, or are on a 0.7% ECB tracker for example.

Sarenco said:
"If the Central Bank does actually introduce a cap and forces rates down, banks will simply recoup the money elsewhere - from other kinds of customers.
Click to expand...
But this is not a reason not to introduce the bill. SVR customers dont deserved to be fleeced any more than SMB customers do. The banks need to come up with a fair pricing model that reflects the services they provide, not targetting particular groups of customers
 
cremeegg said:
The central bank is being undermined, the structures meant to protect us from undue economic exuberance are seen as obstacles to what we want. The first steps always look reasonable.
Click to expand...

IFA Farm Business Chairman, Martin Stapleton, wants the proposed new Central Bank powers to be extended to farmers and SME customers. He said:

“The proposed legislation correctly identifies some of the major issues in the Irish banking sector, which are common to the home mortgage sector and to farmers and SMEs. These include an overall lack of competition in the sector, and the difficulties faced by customers in switching providers.

This is a particular issue for farmers, as the costs of changing banks and of registering a legal charge for secured borrowing are so high that it reduces the value of a more attractive interest rate”.

Mr Stapleton concluded, “The Government must take seriously the need to tackle excessively high interest rates on farm customers and small businesses.

This includes:
  • Consideration of extending powers to the Central Bank to give direction on interest rates for farmer and SME lending;
  • Increasing competition in the banking sector through the work of the SBCI, providing alternative and additional funding; and
  • Reducing the costs of registering a legal charge for secured borrowing, thereby allowing customers to move financial institutions at a lower cost.
Who will be the next lobby group?
 
Brendan Burgess said:
And would it be such a bad thing, if the entire banking base were asked to fund the profits of the lenders, rather than just the 300,000 non-tracker mortgage holders?
Click to expand...

It's not really true that non-tracker mortgages are the only products contributing to our banks' (fairly modest) profits.

Look at the funding side - average new business household deposit rates stood at 0.18% at end-March 2016. The corresponding average rate across the Euro Zone was 0.62% - so Irish depositors certainly aren't getting a great deal.

Similarly, look at commercial lending - new business interest rates for non-financial corporations are 31% higher here than the Euro zone average for loans up to €1m and 27% higher for loans above €1m. The high rates being charged by Irish banks on development loans, for example, are undoubtedly contributing to the sluggish supply of new housing.

One way or another, we are all, directly or indirectly, paying for the lack of competition in our banking sector.
 
Sarenco said:
One way or another, we are all, directly or indirectly, paying for the lack of competition in our banking sector.
Click to expand...
So this would mean either one of two things
(a) banks are making massive profits at our expense
(b) their cost base is too large for the size of the operations
 
gnf_ireland said:
So this would mean either one of two things
(a) banks are making massive profits at our expense
(b) their cost base is too large for the size of the operations
Click to expand...

Well, we know that our banks are not making massive profits and we know that they have pretty drastically reduced their operating expenses in recent years (by shedding staff, closing branches, etc.).

Don't forget their world-beating levels of unresolved non-performing loans...
 
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