The European Central Bank (ECB) considers that the Central Bank of Ireland’s (CBI) decision to legislate regarding mortgage rates could be tantamount to a possible conflict of interest. In a 15-page opinion paper, ECB president Mario Draghi wrote that the Bill, if voted by Irish parliamentarians, would harm the banking sector in Ireland and by extension the Euro zone. The draft law would also forbid banks to claim different rates to existing and new clients.
“This Bill does not seem to encourage competition in the market or tackle other probable reasons why lenders are paying under the euro zone average, with elevated sum of non-performing loans and low level of repossessions,” Draghi stated. “Restricting rates could probably cause the market to be unappealing and daunt newcomers.
Therefore, there would not be proper competition in the Irish banking and financial sectors which would be counterproductive in relation to the proposed law”.The ECB is not agreeable that decisions for commercial banks be transferred to the establishment. Mario Draghi has voiced out his apprehensions after Prime Minister Enda Kenny and chairman of the Finance Committee John McGuinness asked for his views. Kenny, who had a majority in 2015, turned down a related plan by the opposition. However, currently, the Prime Minister has full control on only 59 MP’s. The remaining seats are being ruled by the opposition parties with 157 seats.
Using their numerical advantage, Fianna Fáil, the party proposing the piece of legislation, recommended, last May, that Parliament should vote the Bill as Irish commercial banks were taking some of the maximum variable charges in the Eurosystem.
The response from the ECB was like a cold shower for the opposition parties. Fianna Fáil finance spokesperson TD Michael McGrath was first to react to Mario Draghi’s comments.
“The reaction of the ECB showed that they have no consideration for the difficulties faced by Irish customers who are being deprived of the numerous advantages of the ECB monetary policy. We are happy that our actions have brought down variable rates asked by some banks,” McGrath reacted. On its part, Irish Central Bank is maintaining that it should not be handle such authority.
The director of Credit Institutions Supervision at the Central Bank showed his concerns to a working group set up by parliament stating that “short term fixes may have negative consequences for consumers in the long-run,” Ed Sible responded. However, the Central Bank will have no choice if it is vested with the powers of intervention in controlling mortgage rates.
Related articles published in Mortgage loan :
- Irish mortgage rates drop but remain higher than the European average
- Bank of Ireland keeps variable rates high to influence mortgage borrowers
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