ECB says it can't investigate high mortgage rates and government must consult on legislation

Brendan Burgess

Brendan Burgess

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ECB says it can't investigate high mortgage rates

They wrote to Brian Hayes yesterday.

"However the chair of the ECB's Supervisory Board, Daniele Nouy, wrote to Mr Hayes yesterday. He said that an investigation by the ECB of whether banks pass on the main ECB refinancing rate (currently 0pc) to their borrowers is "not foreseen" as it would fall outside the ECB's mandate.

"To the extent that the issues raised are seen as related to sustained market-wide rent extraction, they would be a matter for competition authorities and/or market conduct authorities to investigate," said Ms Nouy.

The ECB also confirmed that it would have to be consulted on any proposals to legislate in the hugely controversial area."
 
It really is an outrageous, legalistic response.

The ECB should have acknowledged that the rates in Ireland for non-tracker mortgage holders are way out of line.

The ECB publishes the rates in all countries every month. Why does it bother to do that if it's not going to take any action or make any comment based on the information it publishes?

Like the Central Bank, they are committed to fattening the Irish banks through the fleecing of Irish borrowers.

Brendan
 
If all EU banks stopped changing rates in response to cuts/increases in the ECB rates, would this not eventually make ECB rates immaterial to the economy. The ECB would certainly have a harder time trying to control inflation!
 
What exactly do people expect Banks ( Commercial Organisations with Shareholders ) to do ...drop Variable Interest Rates and reduce their profits ...? ... really ...!!! ... that might make perfect sence from a social point of view but commercially they'd be mad not to exploit the current lack of competition in the irish mortgage market. Its the same with Deposit Rates ... why should they pay out good rates when they dont need to. Sorry but these are the facts ...business is business.
 
Depressing but predictable reply.
The ECB is powerless to stop banks they regulate from overcharging on a biblical scale but had the power to threaten the country with financial ruin if we didn't use tax payers funds to repay bond speculators.

Brendan is correct, their primary role as regulator of EU banks to ensure consumers are fairly treated is vastly exceeded by its desire to see those same banks "fattened up" even if that means sanctioning massive price gouging.

I have always been pro Europe but stuff like this would really make you question it all.
 
I'm sure that one of the first things any new buyer of a fattened bank will do is raise the SVR.
 
Really outrageous responses by Nouy

However banks are getting stung in 2 years. Thats when Mortgage Interest Relief goes and Variables increase by 1800 more a year. It will be keys back time then for hundreds of rural customers.

I think the Government realise they are being flattened on this.
 
Shock horror - the ECB refuses cannot act outside its legal mandate.

The primary role of the ECB, as per the relevant Treaty, is the maintenance of price stability. It also has responsibility for defining monetary policy, authorising the issue of bank notes, collecting statistics from national authorities and ensuring the safety and soundness of the Eurozone banking system.

It also has absolutely no consumer protection role and no role in the enforcement of competition laws.
 
Paul Reilly said:
However banks are getting stung in 2 years. Thats when Mortgage Interest Relief goes and Variables increase by 1800 more a year. It will be keys back time then for hundreds of rural customers.
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There is a commitment in the programme for government to retain mortgage interest relief beyond the current end date of December 2017, on a tapered basis.
 
Hi Sarenco

There is no reason on earth why the ECB could not comment on how its interest rate policy is being or is not being passed on to Irish borrowers.

Why do they bother compiling the MIR?

Brendan
 
Hi Brendan

I really don't know why you would expect any official to comment publicly on any issue that is not within his/her competence.

In any event, it is not true that the ECB's policy rate is having no effect on Irish mortgage rates. Again, the median Irish variable mortgage rate is almost exactly the same as the median variable rate throughout the Eurozone. The fact that the bargains (low margin trackers) were doled out some time ago doesn't change this fact.

The ECB compiles the MIR because:- (a) they are required to do so by law; and (b) the data informs their monetary policy.
 
Hi Sarenco

This is what they say in their manual

" MFI interest rate statistics are needed to analyse the monetary transmission mechanism, as monetary policy is transmitted through the economy via the change in interest rates.

First, the statistics give the possibility of studying the pass through of changes in official rates and market interest rates to lending and deposit interest rates faced by households and non-financial corporations. Information
about the speed and extent of the pass-through is essential to understand the effect of monetary policy on the economy.

Second, changes in MFI interest rates affect the cost of capital and so influence investment decisions and substitution
between current and future consumption. MFI interest rate statistics are therefore vital for any economic analysis over time.

Third, the statistics allow income effects to be analysed, as changes in MFI interest rates affect the interest paid or received
by households and non-financial corporations and hence the disposable income of these sectors.

Finally, MFI interest rate statistics enable users to analyse the credit channel of monetary policy, in particular the cost spread between self-financing and credit, the so called external finance premium."

The ECB provides economic commentary. There is absolutely no reason for them not to say "Our data shows that Irish lenders are charging new business borrowers around 2% more than the average in the rest of the Eurozone. This is essential to build up the profitability and capital of banks operating in Ireland. And we don't care if it's at the expense of Irish consumers and the Irish economy"

Brendan
 
Here is what Draghi said yesterday:

“Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity,” Draghi said. “As emphasized repeatedly by the Governing Council, and as strongly echoed in both European and international policy discussions, in order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively, both at the national and at the European levels.”

so why does he not call for the Irish national government to implement statutory control of mortgage rates so that the monetary policy objectives of the ECB can be achieved?
 
The data is published - there is no need for the ECB to provide a commentary.

I have already explained how monetary policy is being transmitted into the Irish economy - median variable mortgage rates are essentially the same as the (exceptionally low) Eurozone average. The dispersion of those rates as between different Irish mortgage borrowers is not a matter for the ECB.
 
Sarenco said:
Shock horror - the ECB refuses cannot act outside its legal mandate.
Click to expand...

Sarenco said:
there is no need for the ECB to provide a commentary.
Click to expand...

You might think that there is no need. But nor is there any restriction on them doing so.

Monetary policy is being transmitted through half the borrowers. The other half are being fleeced.

Apart from the inherent unfairness of forcing some consumers to recapitalise the Irish banks, it does damage confidence in the banking system and that should be a matter of concern for the ECB.

Brendan
 
Brendan Burgess said:
You might think that there is no need. But nor is there any restriction on them doing so.
Click to expand...

There is no need to provide a commentary because the data speaks for itself.

The ECB (quite correctly) refused to conduct the requested investigation (the subject matter of the linked report) because it was outside its legal competence.

Brendan Burgess said:
Monetary policy is being transmitted through half the borrowers. The other half are being fleeced.
Click to expand...

Ok but what does that have to do with the ECB?

Brendan Burgess said:
Apart from the inherent unfairness of forcing some consumers to recapitalise the Irish banks, it does damage confidence in the banking system and that should be a matter of concern for the ECB.
Click to expand...

How does a wide dispersion in the rates being charged to borrowers impact on the soundness or stability of the banking system?

Again, the ECB has no role in arbitrating on what is "fair".
 
Hi Sarenco

There is a general level of disenchantment with the banking system. It is accentuated by the lenders' fleecing of customers. That is not good for the soundness or stability of the banking system. Of course, it's not going to cause a run on the banks on its own, but it would be good for the health of the banking system if banks were respected.

One specific example. Many borrowers in arrears make no effort because of their negative attitude to banks and in particular, to the high interest rates. The banks have fully provided, so again, it does not directly affect their stability and soundness.

But the ECB should be encouraging the banks to behave responsibly and ethically in the interests of the general health of the banking system.

Brendan
 
Codogly said:
What exactly do people expect Banks ( Commercial Organisations with Shareholders ) to do ...drop Variable Interest Rates and reduce their profits ...? ... really ...!!! ... that might make perfect sence from a social point of view but commercially they'd be mad not to exploit the current lack of competition in the irish mortgage market. Its the same with Deposit Rates ... why should they pay out good rates when they dont need to. Sorry but these are the facts ...business is business.
Click to expand...

The ECB should not fund banks that do not comply with it's attempts to influence monetary policy. Why should it??

If the ECB cannot influence interest rates it loses one of its monetary policy tools. While the problem is mostly confined to Ireland at the moment it could spread if other banks think they're mad not to fleece their customers too. I don't want to know what the consequences of this would be!!
 
Hi Brendan

I have never really understood the argument that banks should be "respected" or should behave "responsibly" or "ethically" (which are obviously very subjective moral constructs).

I know banks like to present themselves as being on their customers' "side" and facilitating customer "dreams" but really that's just marketing guff. At the end of the day they are in the business of lending money for maximum profit. Why would that business be more deserving of "respect" than any other business?

I really don't buy the argument that some defaulting borrowers are refusing to engage because they have a negative attitude about banks. That sounds a lot like self-justification to me. The overwhelming reason for strategic default is self-interest - pure and simple. If the advantages of defaulting out way the disadvantages then a rational borrower will default and blaming others (the big bad banks) is just a way of addressing their moral qualms.

Having said all that I do think it is perfectly reasonable for society to place restraints on the ability of lenders to charge usurious rates but it should do so by way of a statute passed by democratically elected representatives - not by vesting some vague power in an unelected government official or regulator. It's probably fair to describe that as an idealogical position.
 
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