Ireland’s three biggest banks have told the Government they will not pass on the European drop in interest rates to tens of thousands of struggling mortgage holders.
Taoiseach Enda Kenny reacted by threatening to hand new powers to the Financial Regulator to clamp down on the lenders.
Bosses at AIB, Bank of Ireland and Ulster Bank were all hauled before the Cabinet’s internal super council charged with fixing the economic crisis.
They were quizzed about their plans after the European Central Bank cut its key interest rate by a quarter per cent last week in response to the deepening eurozone crisis, as well as about their lending to small businesses.
The Economic Management Council (EMC) includes the Taoiseach, Tánaiste Eamon Gilmore, Finance Minister Michael Noonan and Public Expenditure and Reform Minister Brendan Howlin.
It is understood the chiefs of all three banks told the top Cabinet ministers they would not be passing on the interest rate savings to their standard variable rate mortgage holders.
A Government source said all the ministers expressed their “deep disappointment” with the decision.
The talks ran for almost two hours, nearly twice as long as expected, and exchanges were described as frank and business-like.
Mr Kenny contacted Financial Regulator Matthew Elderfield afterwards to inform him of the position of the banks.
He also told him that any further support he might require from the Government would be “forthcoming”, the source said.
Mr Elderfield has complained in the past that regulators had no direct powers to tell lenders to cut rates, while Mr Kenny has already indicated he will consider new laws to force taxpayer-backed banks to pass on European interest rate cuts.
State-owned AIB said its customers had already benefited from its decision not to hike rates in line with the ECB earlier in the year.
After the meeting at Government Buildings, AIB executive chairman David Hodgkinson said: “Because we didn’t increase it, we won’t lower it.”
Mr Hodgkinson said they had cut rates at EBS, now owned by AIB, and claimed to have the lowest rates in the market.
Also coming out of the talks, Bank of Ireland chief executive Richie Boucher curtly refused to disclose its plans.
“We had a productive meeting. I don’t have any further comment to make,” he said.
Mr Boucher would only say that Bank of Ireland will lend €3bn to small businesses this year, as required under the terms of its publicly-funded bailout.
EBS, Permanent TSB, KBC, Irish Nationwide and Bank of Scotland have all announced their intention to cut variable mortgage rates in line with the ECB’s latest move.
National Irish Bank, part of the Danske Bank Group, has angered customers over its refusal to pass on the saving.
A Government source said progress was being made on the issue of lending to small businesses.