Governor Lane before the Oireachtas Finance Committe now

Brendan Burgess

Brendan Burgess

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http://www.oireachtas.ie/parliament/watchlisten/watchlive/committeeroom4/#d.en.14803

Not sure what time he started at, but probably 2pm. He seems to be making his opening statement.

It is not our role to run the firms we regulate, including setting rates.

We work on transparency...

We want to see a more consumer focus within firms.

They must be able to show that their products are understood by customers. They must do product testing on customers.

We will continue our supervision on tracker mortgages and health insurance.

We will be doing more work (on transparency?) for variable rate mortgage holders.

A new activity
Central Credit Register being established will be fully operational from 2017.

We expect to recruit 150 staff bringing it to 1,650.

Peer reviews recognize the CB's adherence to the highest international standards
 
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Michael McGrath

New LTV rules. Can I put the case of a couple renting who are paying €1,500 per month. Will not be able to save for a deposit. To what extent can the rules be reviewed for them?

Governor: Banks will value that evidence and the evidence from the Central Credit Register. When we review later in the year, we can look at that. It sounds sensible that the track record of paying rent is reasonable. Having said that, buying a house is very different from renting. It's an irreversible commitment. You have to allow a considerable margin to allow for shocks to income.

We allow 15% exceptions, and the track record may be relevant.

McGrath: People who can stay with their parents have a huge advantage over people who are renting.

Governor: These rules affect different groups differently. We know what happened when we had lax rules 10 years ago. We need a system which limits that risk. One way the sector will adjust is that house prices will moderate. The bidding war on houses will be less intense, so people can buy houses for lower prices.

Standard variable mortgage rates for existing customers
Most of the deals are for new customers. Existing customer are being treated fundamentally unfairly.
I hope you tackle this.

This is a clear case of discrimination against existing customers.
What can you do to address this?

Governor: Many markets have different pricing for new customers - I fully appreciate the perception that this is unfair. Our p;osition is that the banks must be run on a commercial basis. We can discuss the level of competion and whter the high rates will persist.
But the bank cannot interfere in the contracts between banks and borrowers.

One of our goals is to make switching easier. As with mobile phones. The bank can work on that.

But we don't have the power to tell banks to treat existing customers the same as new customers

McGrath: You could bring in a code of conduct on mortgage switching.

When the cost of funds is 1% to 1.5% , it is wrong to be charging 4% to 4.5%

if you are an existing customer, you might be trapped. You have a key statutory role in consumer protection.
 
Senator Coughlan (FG?)

Vulture funds are placing businesses at serious risk of failures. They refused to come before us in early December. They seem to be accountable to no one. They are totally unregulated here. Are additional legal measures required to protect home owners and SMEs.

Governor: The new 2015 seeks to protect borrowers of these firms. The Credit Servicing firms are now looking for authorisation from the CB.
 
Pearse Doherty

The Banking Inquiry is reported to be critical of the CB. What will you do about it?

Governor: That is the key to my job. It's essential that the bank is proactive.

For example, we should have had rules in place for mortgages. The challenge for me is to ensure that complacency does not develop as the crisis recedes.

The cost of this is the counter argument: "There is no need to intervene". I anticipate that there will be a lot of chatter saying why is the CB intervening when there is no sign of a crisis.

Doherty:
How many staff are supervising Bank of Ireland, AIB and Cerberus?

Governor: There is a Joint Supervisory Team between the SSM and the Central Bank. There is no shortage of resources supervising the largest terms. We use PRISM. AIB and BoI are classified as "other significant institutions" and now require additional capital.

Cerberus is not a deposit taker.

Mortgage rules
One proposal is that the government provides a grant of up to 25% of the deposit to circumvent the rules.

Governor: We are not out to burden individuals. If the borrower receives a fiscal grant, the risk is lower for the banks. That would solve the LTV problem but it might not solve the LTI issue. Lower reliance on debt funding comes at a fiscal cost.

Doherty: Commercial property was the main cause of the banking collapse. How concerned are you at the recent 21% increase in commercial property prices.

Governor: Good point. Commercial real estate does raise the issue as to where is this compared with the long term sustainable level. But how are these acquisitions being funded? It's not by the lending system. But it also affects the collateral of the Irish banks on their existing loans. That recovery is one of the big numbers we look at.
 
Chairman Aideen Hayden

Buy to let mortgages - over 6,000 subject to receivership. The receivers behave badly. Do you have any role in introducing a code of conduct for receivers in regard to tenants.

Governor: I would have to consult my colleagues on that.

Hayden: There has been a massive increase in rents. People are now trapped renting. If the LTV rules are not amended. We went from 120% LTV (sometimes higher) to 80%

The definition of what is sustainable is very narrow.

Chartered Surveyors are saying that the rules are hampering the recovery of the construction sector.

Related to that, there is no lending available for construction companies as they are subject to distress

The max loan is 60% of the capital required

Governor: The big losses were on development loans, so we can't go back to higher loan levels. The international norm is 40% comes from equity. This is a big cultural shift for the Irish where they relied on banks to fund. I don't want the banks to give more than 60%. The government can help fund the building.

Debt is not the only way to finance construction.

Hayden: Banks have treated vulnerable customers badly. For example, BoI changed the minimum withdrawal to €700 and discouraged customers from coming into banks. Do you see a role for yourself there?

Governor: I am sympathetic to that issue. Not everyone is internet enabled. What are the relative responsibilities of the banks, social banking and the Central Bank.
 
Deputy Boyd Barrett

10 January - a whistle blower contacted me - the same one as Mary Lou. They are alleging that when conducting an internal audit, they were instructed to delete sections of that audit. Their professional body told them not to delete it. Those more senior wanted these findings deleted from the report. This person was then let go. Having been let go, he was warned that he would find it difficult to get work elsewhere. He got employment in another financial institution, but was let go there after a few weeks after he lodged a complaint with a Rights Commissioner.

Governor
That case is still ongoing at the Workplace Commission, so I can't talk about it.
Internal audit is a vital function. We are expanding the internal audit team. We have no reason to not take on board any suggestions coming from internal audit. We have had 40 internal audits this year. The internal audit on governance to which this relates identified a number of issues and all recommendations have been implemented.
We handled this allegation over to an external firm which concluded that the Central Bank had a reasonable process to deal with it.
This is not the right forum.

Mortgage arrears
As a result of mad lending by the banks. At the end of protracted negotiations in one case, payments were made and arrears were "written off". When this person went back to the bank after the deal was done, when they went back to get a small loan to keep their business going, they were told they were blacklisted on further credit. Is that common practice. People who were caught up in a situation created by the banks in a period of economic madness. Should this be going on? Is it fair? It seems to me to be unacceptable.

Governor: The crisis highlighted that we should separate business debt from personal debt. There should be a bigger separation. If the finances are co-mingled . There is an Ombudsman process to appeal refusal of credit. And the new legislation on SMEs will help.
 
Senator Seán Barrett

How will the counter cyclical capital buffers work?

Governor: We will be taking the macro view. Collectively we will reckon that there is too much lending going on and we will require the banks to hold more capital.
 
Mary Lou McDonald
The internal audit report on Governance was damning. I understand that you have remedied some of the problems.

Governor: We should aspire to a gold standard. But how do you get there? Any audit report describes high risk and low risk areas. We have responded correctly. We are appointing a Chief Operating Officer.
 
Pearse again
People in arrears are contemplating suicide.

The CB is allowing the banks to treat surrender as a sustainable solution.

Lane: Honohan expressed regret that he could not solve the problem. But what we are doing is the most we can do as a Central Bank.
 
I have to say many thanks to Mr Burgess for these extracts.
I think Mr Lane is very open and refreshing.
 
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