Banks come under scrutiny over interest rate changes

The Irish Financial Services Regulatory Authority is to undertake a study into how interest rate changes are being passed on to the consumer, it emerged today.

Consumer Director, Ms Mary O'Dea, said the study was prompted by public concerns that recent ECB interest rate cuts were not being passed on and that there were delays in doing so.

Speaking at a meeting of the Joint Oireachtas Committee on Finance and the Public Service, Ms O'Dea said: "It is now incumbent on the financial institutions to clearly demonstrate to the consumer what their policies are and how they are being implemented.

Representatives from the main banks appeared before the Dáil Committee this afternoon to answer questions on bank charges and other issues of concern to consumers.

Banks and mortgage lenders have come in for criticism in recent weeks for offering uncompetitive rates and for failing to pass on the full extent of ECB rate cuts.

Fine Gael finance spokesperson Mr Richard Bruton said: "In the past two-and-half years, the European Central Bank interest rate has come down from 4.75 per cent to 2.0 per cent. Only half of this cut has been passed on to business borrowers and personal borrowers.

If it had been passed on in its entirety, businesses and householders would be paying €1 billion less in their annual interest bill, he said.

The study announced today will seek to identify the impact of decreases and increases in interest rates on an institution's cost of funding, and to examine how and when this impact was distributed to their customers, the finance regulator said.

Ms O'Dea said: "We need to understand the scale of the problem, whether it runs across all banks and all product lines or whether certain institutions or certain product lines have particular issue in this area."

She said: "We also need to understand how the problem can be dealt with in a way that recognises the conflicting needs of borrowers and depositors."