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

[Andy836]

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

Probably a major driver of the OpEx. NPLs require a huge amount of manhours.
Add in external legal costs (high at the best of times) which are exacerbated by how many different court appearances are needed to secure a judgement.

 

[cremeegg]

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.

Sorry Brendan but it wasn't FF that were my intended target. I was having a pop at yourself.

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

The stated purpose of the bill, to mitigate the position of trapped SVR borrowers, is perfectly reasonable, but the implication that the CB can be used to placate interest groups in society is a very worrying development. However reasonable the current case.

What interest group will be next. Farmers and SMEs it seems. Next thing you know the politicians will be authorising the CB to pressure the banks to give favourable terms to farmers, thereby further propping up our most inefficient sector.

 

[Brendan Burgess]

Hi cremeegg

The bill is about variable mortgage rates. As someone else pointed out that being populist does not mean it's in some way wrong.

You don't seem to have found any fault with the bill itself. It's just you don't like it because I am promoting it, if I understand you correctly.

Or you don't like it, because undeserving causes might get populist support.

I don't think that either reason is good enough for rejecting the bill.

But if you have good arguments against the bill, by all means spell them out. There are many threads discussing different aspects of it. And there have been many alternative approaches suggested.

Maybe I will oppose the bill. By your reasoning, then you would automatically support the bill.

Brendan

 

[cremeegg]

Hi cremeegg

The bill is about variable mortgage rates. As someone else pointed out that being populist does not mean it's in some way wrong.

You don't seem to have found any fault with the bill itself. It's just you don't like it because I am promoting it, if I understand you correctly.

Of course I'm not opposed to it just because you are promoting it.

Or you don't like it, because undeserving causes might get populist support.

That is closer to my reasoning but not exactly my point.

But if you have good arguments against the bill, by all means spell them out. There are many threads discussing different aspects of it. And there have been many alternative approaches suggested.

Brendan

The only remaining purpose of the Central Bank (now that we no longer have our own currency) is to protect the banking system, because a functioning banking system is needed for the good of the economy as a whole. We have all suffered in recent years as part of these efforts to protect the banking system.

I think that it is important that we have a credible and effective Central bank to protect our economy from future upsets. I think this bill would undermine that.

Those people trapped on high rate SVRs are continuing to suffer and I fully understand that efforts to assist them are needed, personally I think that requiring banks to give the same rates to existing customers as are offered to new customers would be a good idea.

My concern is that this bill is pandering to a special interest group at the expense of the credibility of the Central Bank. That seems dangerous to me, however deserving of our sympathy this particular special interest group may be. that is why I am opposed to the bill.

Other interest groups are already queueing up looking for special consideration, some of those groups are less deserving of our sympathy.

The reason I made reference to you personally is that if the undermining of the central Banks position starts here and continues with changes to the mortgage deposit requirements and goes on to other matters, then you will be in the position of having started that ball rolling. this is why I titled the thread "be careful what you wish for", I think that there could be severe unintended consequences. Of course if that happens it will be due to pressure from all sorts of interest groups and inability to resist them on behalf of the political system, and not just Brendan Burgess' doing.

The reason I mention your role in this is that it just strikes me as hugely unlikely that you would be the person to get the populist ball rolling again, and I know that is not your intention, but it may come to be the case. Don't worry Paul Murphy or Richard Boyd-Barrett will be sure to try to claim the credit.

 

[gnf_ireland]

The only remaining purpose of the Central Bank (now that we no longer have our own currency) is to protect the banking system

Is this really the case? I also believe that it has other functions including Consumer Protection ?

if you feel the role of the Central Bank is conflicted between protecting the banks and protecting consumers, which do you think should take precedence? The Central Bank today clearly believes it is to protect the banks...

If the Central Bank does not want the role to protect Consumers, then maybe this power needs to be taken off them and the Central Bank downsized accordingly, with a separate group set up with real powers to protect the Consumers.


As I said in a previous post, maybe banks need to put fair pricing models in place for their services so that people feel they are not being screwed. Targeting any particular sub-set of customers, just because they are trapped, is unfair. And please spare us the 'life is unfair' commentary.


Maybe the long term answer out of this issue is a proper EU wide banking union, where all persons can avail of banking services from any EU state, including savings, mortgages, current accounts, investments etc, all regulated and protected by a single ECB.

But until then, I do believe that customers who cannot switch mortgages need to be protected.

 

[Sophrosyne]

In relation to consumer protection, I understand that the Central Bank has a [broken link removed] (CAG), which according to the CB website last held a meeting on 26 July 2011.

Does this group still exist?

 

[Brendan Burgess]

Cremeegg

To solve your problem with the Central Bank's credibility, let's put a statutory cap of 3% above the ECB rate on all mortgages. The Central Bank does not get involved and so their credibility won't be affected.

For the record, I fully supported the Central Bank's proposals on mortgage deposits and will be making a submission to the review suggesting that the requirement for first time buyers be increased to 20%.

I have no idea why your are mixing up the two.

The Central Bank has many roles including the protection of consumers. But I agree that from their behaviour, their consumer protection role is not evident.

If it is concerned about the capital position of the banks, then it can tell the shareholders to put up more capital. They should not be telling the 300,000 mortgage holders to recapitalise the banks. Those mortgage holders will not be getting in exchange for their infusion of capital.

Brendan

 

[Sophrosyne]

I see that the Consumer Advisory Group still exists but, confusingly, at a [broken link removed].

They have had ongoing meetings up to February 2016.

There is no specific mention, that I can see, of standard variable rates, but perhaps it was discussed as part of general consumer protection.

Could advice from this group have been sought directly by Dáil parties before taking action?

Since the core function of CAG is consumer protection, perhaps it may have informed the Dáil on the possible solutions.

 

[Sarenco]

If it is concerned about the capital position of the banks, then it can tell the shareholders to put up more capital. They should not be telling the 300,000 mortgage holders to recapitalise the banks. Those mortgage holders will not be getting in exchange for their infusion of capital.

Hi Brendan

What happens if you "tell" shareholders (which happen to be the taxpayer for the most part) to recapitalize a bank and they say, eh, no thanks?

When you say "mortgage holders" do you really mean borrowers? In what sense do borrowers ever "hold mortgages"?

Can we assume that we all agree that it is good thing that our banks are now moderately profitable? If we can, then perhaps we can move the discussion forward.

Why would you put a cap of 3% above the ECB refi rate if this policy rate has absolutely nothing to do with a lender's cost of funds or profitability? Would it matter if this meant it was no longer possible for a lender to trade profitably and could only continue in business if it was able to raise to raise further capital from the taxpayer (I think we can safely assume that nobody other than the State would dream of capitalising a lender in these circumstances)?

Would you cut public services or raise taxes to fund this additional capital investment or would you simply let a bank go bust, thereby triggering the deposit guarantee scheme? Where would the funds come from to meet these liabilities?

The reality (thankfully) is that there is absolutely no prospect whatsoever that the ECB would ever countenance the sort of legislation that you are proposing.

Surely it would be far better to focus your undoubted abilities on protecting the position of those that cannot refinance their loans rather than continuing with an unrealistic attempt to fix the price of credit?

 

[odyssey06]

Currently, the Central Bank regulates the APR that may be charged by moneylenders.
In light of this, is what is currently being proposed egregious and populist? No.

Is it any more or less populist than the following actions by the previous government?
- A Labour minister introducing regulations on rent increases i.e. only allowing them if landlord can show other rents have gone up in the area
- A FG finance minister throwing shapes about 'putting pressure' on the banks on interest rates.
- I would have to conclude no.

I have heard arguments that the purpose Central Bank is there to regulate and protect the banking system. I cannot reconcile this with the current functions of the Central Bank in consumer protection in the banking system such as the CPC, and the above APR regulations.
So I can only conclude that those arguments are wrong.

We have a situation where people are warning that this could be a bid bad bogeyman that scares away imaginary new entrants. We have an actual new entrant that's been knocking at the door for 7 months and the Central Bank won't let them in. What do you think would actually deter new entrants more?
So I have to conclude that that argument is wrong also.

We already have a situation where the Central Bank rigidly specifies mortgage lending limits. So it already deems that it knows better than the banks what lending levels they should engage in. Is is that egregious to also concern itself with the interest rate charged?
I would conclude no.

We have a situation where the Central Bank says it should not have the powers because the situation is not egregious enough to warrant it. Which means it can envisage hypothetical situations where it would need it. So why not share them and get them put into the law?
So by the Central Bank's own admission, it would not be wrong, in certain circumstances, for them to have these powers.
So I can only conclude that the argument that this is not a proper function of the Central Bank is wrong.

Now maybe Michael Noonan has come to genuinely believe that this is unconstitutional, so he is bluffing the banks by threatening them with this without taking steps to bring it into life. Or maybe he's just being stubborn and going into ostrich-in-the-sand mode. Who knows.
If Noonan and the Central Bank are so concerned about populist measures like these, they should not allow them to fester to the point where they become a populist issue, but should intervene with a technocratic measure e.g. some variant of the French system, and take the wind out of the sails of the populists.

Now you will note nowhere in the above have I expressed positive support for this measure. I am not convinced myself that this is the optimal remedy. The constitutional aspect complicates things and it may be that the best remedy is one that does something about the issue and passes muster in terms of the constitution - which may or may not be what's currently on the table.

But what I do know is that I have heard the arguments for this measure, and against this measure, and it's 10-0 to those in favour.

 

[cremeegg]

Cremeegg

For the record, I fully supported the Central Bank's proposals on mortgage deposits and will be making a submission to the review suggesting that the requirement for first time buyers be increased to 20%.

I have no idea why your are mixing up the two.

This for me is the heart of the matter. The two are mixed up.

If the CB is used to relieve the pressure on politicians to do something for trapped SVR people today, it will be used to relieve the pressure on politicians tomorrow for something else.

A very likely something else is the position on mortgage deposits. It is not hard to imaging some politician saying "the CB must relax these onerous rules, our young people cannot buy houses" in the run up to the next review.

Who will be willing or able to come along and say, "the CB exists for the protection of the banking system and the economy, it should not be forced to change its policies to relieve pressure on politicians".

 

[odyssey06]

Who will be willing or able to come along and say, "the CB exists for the protection of the banking system and the economy, it should not be forced to change its policies to relieve pressure on politicians".

This is not now, nor has even been the sole reason for the existence of the Central Bank.

I cannot reconcile any of the comments in this thread with the actual role of the Central Bank in 2016.
How does the Consumer Protection Code, published by the Central Bank, fall into the remit of "protection of the banking system and the economy".
How does the enforcement by the Central Bank of the
Consumer Protection (Regulation of Credit Servicing Firms) Act of 2015 fall into that definition either?
Was that an example of the Central Bank being forced to change its policies to take pressure off politicians? In which case, the horse has long since left the stable.

Those functions are primarily about consumer protection, not protection of the banking system and the economy. But let's abolish the CPC, because as long as the banks are alright, even if they are fleecing customers, the CB will have fulfilled its remit under your narrow definition.

 

[thedaddyman]

This is not now, nor has even been the sole reason for the existence of the Central Bank.

I cannot reconcile any of the comments in this thread with the actual role of the Central Bank in 2016.
How does the Consumer Protection Code, published by the Central Bank, fall into the remit of "protection of the banking system and the economy".
How does the enforcement by the Central Bank of the
Consumer Protection (Regulation of Credit Servicing Firms) Act of 2015 fall into that definition either?
Was that an example of the Central Bank being forced to change its policies to take pressure off politicians? In which case, the horse has long since left the stable.

Those functions are primarily above consumer protection, not protection of the banking system and the economy. But let's abolish the CPC, because as long as the banks are alright, even if they are fleecing customers, the CB will have fulfilled its remit under your narrow definition.

The Central Bank Mission Statement is quite simple- Safeguarding stability, Protecting consumers.

Their high level goals state Consumer protection strategic priorities have been identified which aim to strengthen and maintain protection for consumers, so that financial services work in the best interests of consumers both at the present time and in the future.

To me, the FF bill is full and squarely in line with the high level role of the Central Bank. The current banking practices around high mortgage rates are not in the best interests of consumers

there is also no doubt that the banks will try and get any lost revenue back elsewhere, whether it is via increased rates on other loans, reduced saver rates or increased fees and charges. However, that in itself is not a reason to tackle the mortgage issue

 

[Brendan Burgess]

What happens if you "tell" shareholders (which happen to be the taxpayer for the most part) to recapitalize a bank and they say, eh, no thanks?

The taxpayer owns half of the mortgage market in Ireland. 100% of AIB, 75% of ptsb and 15% of BoI.

The Irish new business market is extremely profitable and there is no reason for the shareholders to say no. With the possible exception of ptsb which is probably not sustainable.

Can we assume that we all agree that it is good thing that our banks are now moderately profitable? If we can, then perhaps we can move the discussion forward.

It is, but they should not be profitable on the backs of a very small group of borrowers. If, the banks are unprofitable due to stupid decisions in the past, they should not recover the position by exploiting the current or new borrowers.

Why would you put a cap of 3% above the ECB refi rate

Banks across the eurozone are lending at 2% above the ECB rate. So I have suggested a 3% rate to give them plenty of scope.
if this policy rate has absolutely nothing to do with a lender's cost of funds or profitability?

You can answer that yourself as you have suggested a cap linked to the average mortgage rate.

Would it matter if this meant it was no longer possible for a lender to trade profitably and could only continue in business if it was able to raise to raise further capital from the taxpayer (I think we can safely assume that nobody other than the State would dream of capitalising a lender in these circumstances)?

Let's be absolutely clear. At 3% above the ECB rate, mortgages are extremely profitable. I am not suggesting stopping the lenders from making profitable lending. ptsb's cost of funds is .55% , BoI's 0.8% .

Would you cut public services or raise taxes to fund this additional capital investment or would you simply let a bank go bust, thereby triggering the deposit guarantee scheme? Where would the funds come from to meet these liabilities?

You are confusing different issues. I am not asking the taxpayer to subsidise new mortgages.

Take ptsb for example. The best decision may be for it to stop new business as it may not be able to develop a viable business plan. It would be gradually wound down and the excess capital, of which it has lots, would be returned to the shareholders.

The reality (thankfully) is that there is absolutely no prospect whatsoever that the ECB would ever countenance the sort of legislation that you are proposing.

I am not sure that is correct. But I don't know.

Surely it would be far better to focus your undoubted abilities on protecting the position of those that cannot refinance their loans rather than continuing with an unrealistic attempt to fix the price of credit?

Both need protection so I will continue to campaign for both groups.

 

[Brendan Burgess]

If the CB is used to relieve the pressure on politicians to do something for trapped SVR people today, it will be used to relieve the pressure on politicians tomorrow for something else.

Again, you argument is ideological at best, and meaningless at worst.

Do you think that mortgage rates are too high? If you do, do you think that the banks should be forced to reduce them?

Deal with that argument on its own merits.

And then if you want to argue about some other measure, by all means do.

But it's illogical to say "We should not do what is right, because it might set a precedent to do something wrong."

 

[cremeegg]

it's illogical to say "We should not do what is right, because it might set a precedent to do something wrong."

It is perfectly logical to say, if you want to relieve trapped SVR borrowers, find a way to do so which does not set a precedent for doing something wrong in the future.

There are many excellent suggestions for doing so on here, my own favourite is requiring lenders to offer the same rates to existing and new customers.

Giving the central bank powers it says it does not want, for reasons of political expediency, will lead to trouble.

 

[Brendan Burgess]

Giving the central bank powers it says it does not want, for reasons of political expediency, will lead to trouble.

It is not being done for political expediency. You continue to make all sorts or arguments which don't follow.

It is being done because the market is dysfunctional and the lenders are fleecing the borrowers. It would be better if the lenders were to fix the problem themselves without the need for legislative change.

It has certainly helped Fianna Fáil, but as has been pointed out to you before, that does not make it wrong.

Brendan

 

[cremeegg]

It is not being done for political expediency.

My comment that it is being done for political expediency is of course directed at FF and not at yourself. People with high SVR mortgages unable to change lender are perfectly entitled to campaign for an improvement in their situation, and it is admirable that you try to help them. My concern is what future developments may arise from this.

If the Dail considers that the banks are behaving unreasonably and exploiting those people the Dail should act to remedy the situation, by for example prohibiting discrimination by banks against existing customers.

The Dail should not pass the buck by giving the Central Bank powers it does not want, and then saying, nothing to do with us, that is a matter for the Central bank.

That to my mind is pure political expediency.

You continue to make all sorts or arguments which don't follow.

I'm doing my best Brendan, I'm doing my best.

 

[Sophrosyne]

This could get a little over-heated.

In fairness, I think that cremeeggg is simply urging caution.

The main issue is whether the Bill will accomplish the stated intention of FF – i.e., force a reduction of svrs.

That will largely depend on two issues:

1. Whether the Bill will pass a constitutionality test; and

2. If it did pass that test, whether the CB will ever actually use the discretionary powers that the Bill intends to confer.

Enacting legislation is costly and involves months, sometimes years of time and effort by a lot of people, not to mention the monetary cost, which may be for nothing if the legislation is struck down on its first outing.

Sometimes, minor flaws can be ironed out, but sometimes the flaws are so intrinsic that they cannot.

The constitution does not always place property rights above social justice, provided that the restriction on property rights is fair and not arbitrary and the social good to be achieved warrants or is proportionate to the restriction on the exercise of property.

However, there is also the problem of retrospection – the proposed bill would affect contracts already in existence.

Therefore, if there are constitutional concerns, surely the responsible thing to do is to have the Bill tested before incurring the considerable cost of the various stages of enacting the legislation.

The opinion as to whether the CB will ever use a power that it is not compelled to use, whether just having the discretion to use that power will be a sufficient threat to force downward pressure on rates or whether there will be unintended consequences is highly subjective. All opinions have some value and should be welcomed.

 

[Sarenco]

The taxpayer owns half of the mortgage market in Ireland. 100% of AIB, 75% of ptsb and 15% of BoI.

The Irish new business market is extremely profitable and there is no reason for the shareholders to say no.

Well, I personally have absolutely zero interest in any more of my taxes being invested in our banks. Zero. And I strongly suspect that this would be the view of an overwhelming majority of taxpayers.

In fact, I would be strongly in favour of the State exiting the banking market as soon as it makes financial sense to do so.

I hope you will forgive me if I query your estimation of the value of Irish bank shares - your track record isn't exactly stellar in this regard.

It is, but they should not be profitable on the backs of a very small group of borrowers. If, the banks are unprofitable due to stupid decisions in the past, they should not recover the position by exploiting the current or new borrowers.

I pointed out in an earlier post on this thread why it is simply not true to say that banks are only profitable because of certain non-tracker mortgages. Look at deposit rates, the rates charged on non-housing consumer loans, commercial lending rates, etc. These are all materially out of line with Euro Zone averages.

You can answer that yourself as you have suggested a cap linked to the average mortgage.

The difference is that average rates are currently determined by the market and not by a State commissar.

Let's be absolutely clear. At 3% above the ECB rate, mortgages are extremely profitable. I am not suggesting stopping the lenders from making profitable lending. ptsb's cost of funds is .55% , BoI's 0.8%.

There is no question that lenders are currently charging a very generous margin over their cost of funds on new mortgage products.

However, as I have pointed out previously, the average variable rate on all outstanding mortgages in very much in line with the average rate across the Eurozone. I think that is quite extraordinary when you consider the world beating levels of unresolved non-performing loans that our banks are holding.

I appreciate that you can happily ignore the past where it suits your argument. But a prudential financial regulator can't simply ignore the past and our legislators shouldn't pretend that the regulator can, or should, do so.

Both need protection so I will continue to campaign for both groups.

My difficulty is that in pushing for an unrealistic (and, in my opinion, undesirable) proposal, you are reducing your chances of achieving a degree of protection for borrowers that are not in a position to refinance their mortgages (and I think we both agree that this cohort are deserving of some protection).