Well, whether or not it makes any sense to you, it has always been the case that banks have to take historic losses into account in determining impairment provisions for new loans. You would certainly hope that stricter underwriting criteria will result in lower impairments going forward but only time will tell whether this actually proves to be the case.
A new entrant to the market without such historic losses will obviously have a lower cost of capital and can offer more competitive rates to attract new business.
I have never accepted the argument for anything "It has always been the case." That is simply not a justification. It might suggest that there is a good reason for something, but it is not in itself a good reason.
The historic losses are simply not relevant. Let's take an analogy. AIB has historic losses in Ireland. It starts lending in Denmark. So it prices its risk based on its Irish losses? No it would not. Likewise lending today is a different country from lending 10 years ago. The risk is much lower and it so the rates should not reflect the losses caused by the reckless lending of 10 years ago.
You talk about a new entrant to the market. If Santander enters the Irish market and starts offering low LTV loans at 2.5%, those customers of the other banks who can move, will move. As soon as that happens, all the academic arguments about historic losses will disappear and the banks will lower their new business rates to 2.5%.
In my opinion, public policy should be directed to encourage (and certainly not discourage) new entrants and capital into our banking system in order to drive down the cost of credit. Do you disagree?
In an ideal world, competition would sort out the problem and there would be no need for regulatory control. But guess what? It's not an ideal world. The banks run a cartel and fleece their customers by charging low-risk new business far more than than they should. There is no sign of a competitor coming in so, unfortunately, there has to be some control while the market remains dysfunctional.
It's not acceptable to tell the 300,000 variable rate borrowers who are paying around €250 a month in excess interest to wait until a new lender enters the market.
I don't understand how a non-performing loan could ever be profitable for a lender, never mind super-profitable.
A lot of people and, indeed, a lot of banks don't understand this either. But think about it. The total cost of the inputs and cost of capital (allowance for profit) for a low LTV loan in Ireland, excluding risk, is around 1.5%, but let's say 2%. While they are charging above 2%, they are making supernormal profits. They continue to charge this rate during the 5 year long repossession process. So they continue to make supernormal profits. Banks make money by lending money. The longer they charge, the more money they make.
Has the SVR campaign changed its name and objective? It would also be helpful if you could set out its demands or its policies for pursuing its current objectives as this is entirely unclear to me.
Yes, we have adopted the name The Fair Mortgage Rates campaign. Thanks for the suggestion on publishing the objectives. We have agreed them. I will set them out in writing, get the agreement of the others, and publish them.
Why would you compare the average variable rate on all outstanding mortgages with average new lending rates? That makes no sense whatsoever.
Average new variable mortgage rates in France, for example, are currently around 2.08%, which is obviously far lower than new variable lending rates in Ireland.
There is a bit of confusion here. I was using your figures. I was objecting to your comparison of all outstanding variable rates in France 3.08% with the equivalent rate of 2.77% in Ireland. The rate in Ireland is an average of 1% on trackers and 4.2% on non-trackers. You should compare the 3.08% with the 4.2%.
But the real comparison is in the new business variable rate which is the main figure I have been campaigning on. In France, it is 2.08%. In Ireland it is over twice that at 4.2%. There is simply no justification for this. Why should a First Time Buyer or a switcher pay 2% points more? It's completely unjustified. And I repeat, I accept that higher LTV mortgages in Ireland should be charged more while we make it difficult for lenders to repossess.
Why would you compare discrete bank products in isolation from all other bank products? Again, that makes no sense whatsoever.
Not sure what you mean by that. In Ireland products are generally discrete and are priced separately. The exceptions are KBC and Ulster Bank who give discounts for those who hold current accounts. I don't have a problem with this, but they are still charging excessive rates after the discounts.
However, there is an obvious public policy interest in ensuring that banks are sustainable - bear in mind that the primary reason for regulating banks in the first place is to ensure, so far as practicable, that depositors are protected. Ignoring the financial position of our banks when determining banking policy would be totally irrational and counter-productive.
There are conflicting interests. I do think that the requirement to treat borrowers fairly has to be taken into account. I am not suggesting that the banks should not make profits on their variable mortgage rate products. Clearly they should. When AIB and BoI were charging 3% and were paying 3% on deposits, I advocated that they should raise mortgage rates.
AIB and BoI and ptsb can charge fair rates and their variable rate mortgage book will contribute to profit.
They have fully provided for the historic losses and are now writing back the provisions, so they no longer need a margin for that.
BoI has a small margin on its trackers
AIB is making a small loss of margin on its trackers.
ptsb is the big problem. The margin on its variable rates is not enough to pay the costs of administration of the whole book and the small loss on its trackers. But that is the shareholders' problem. The shareholders should put in sufficient capital. It should not fleece its non-tracker customers to cover all the costs of operating the book and building up capital.
If a new lender were to enter the market, all the arguments you , the banks , the government and the Central Bank have put up will fall apart. New business rates would fall to 2.5% to 3%. We would still have a problem of 150,000 borrower who cannot move so we would still need some legal mechanism to protect them. If we don't, then you will be back here justifying a margin of 6% on these loans so that the banks will be profitable.