State-owned Allied Irish Banks has been forced into an embarrassing U-turn and cut its mortgage interest rate by a quarter of one per cent.
The bailed-out lender last night bowed to a day of intense Government pressure and threats of tough consumer laws despite initial refusals to pass on cheaper borrowing spearheaded by Europe.
Taoiseach Enda Kenny had warned the country’s three biggest banks they face hard-hitting legislation to enforce rate cuts while Tánaiste Eamon Gilmore pleaded for a rethink.
Bosses at AIB, along with Bank of Ireland and Ulster Bank, had been hauled before the Cabinet’s internal super economic council on Wednesday where they point blank rejected demands to ease the cost of mortgages.
The initial refusals had left tens of thousands of struggling homeowners facing no sign of relief on crippling mortgages.
AIB, effectively owned by the Irish taxpayer, has issued a brief statement confirming the awaited U-turn.
“Following the meeting between AIB, members of the Government and the Economic Management Council, the board of AIB has decided to implement a 0.25% interest rate cut to its variable rate mortgages,” AIB said.
The lenders had been warned that the Government was prepared to force their hand with tough new consumer laws and was awaiting advice from the Financial Regulator Matthew Elderfield.
“The reason the European Central Bank introduced that reduction is not so the banks could pocket it but so they could pass it on,” Mr Gilmore said.
A report on options for new banking laws to enforce ECB rates is expected quickly, the Tanaiste said.
“This is about taking action, it’s not about words,” Mr Gilmore said.
The refusal to pass on ECB rate cuts had meant tens of thousands of standard variable rate mortgage holders would miss out on monthly savings of €15 for every €100,000 borrowed.
Junior minister Brian Hayes had on Wednesday branded the banks’ response pathetic.
Mr Elderfield has complained in the past that regulators had no direct powers to tell lenders to cut rates.
AIB originally said its customers had already benefited from its decision not to raise rates in line with an ECB increase earlier in the year. The ECB then eased lending costs by the quarter of one per cent last week.
Mr Gilmore said there was no ambiguity about the Government’s position.
“The Government was very clear with the banks about our wish and determination that the interest rate will be passed to the customer,” he said.
“We made it clear to the them that if that does not happen the question of legislation is something the Government will consider.”
Eamon Ó Cuiv, Fianna Fail deputy leader, questioned whether members of the bank boards should be replaced for not acting in the public interest..
“I think it’s fair to say words without action do not do much for us,” he said.
Joe Higgins, Socialist Party TD, claimed the Government had been humiliated by bankers.
The Government welcomed AIB’s decision.
“AIB did not impose the last two ECB interest rate increases and this latest move by the bank is to be welcomed,” the Government said in a statement last night.