What options does the Government have when it comes to banks?

Paschal Donohoe, the finance minister, is set to admonish banks for their behaviour.

Analysis

The Government has threatened a harder line on banks which have been found to have targeted their own tracker mortgage customers, but just exactly what can they do?

Much has been made of the role of the Central Bank and its powers to force the banks to address the maltreatment of those customers, who could ultimately total 30,000.

Finance Minister Paschal Donohoe is to meet the banks next week and “admonish” them for their behaviour, but just what options are open to him? Or will his telling-off just be another shallow public relations exercise?

Laws:

Taoiseach Leo Varadkar, speaking to the Irish Examiner yesterday, made it clear that greater powers will be given to the Central Bank if it is deemed necessary. Fianna Fáil have said such additional powers should be considered.

For its part, the Central Bank has repeatedly insisted that it now has sufficient powers to prevent such poor treatment of customers into the future on foot of law changes in 2013, but it does not have the power to retrospectively apply those rules to events that happened before that.

As a result, the bank insists it has no power to force the commercial banks, most of whom were bailed out by the State to the tune of €64bn, to cough up.

Worse still, it has emerged that the banks have lawyered up in order to frustrate this process and have even gone as far as threatening to sue the Financial Regulator.

Levy:

There has been a suggestion that the Government could increase the levy paid by the banks if they fail to comply with calls to fully compensate the affected tracker mortgage customers.

Quite the revenue raiser already, the bank levy was extended to 2021 in the 2016 Finance Bill, with a view to generating income of €750m for the exchequer over the period.

AIB paid the highest levy at €60m, followed by Bank of Ireland at €38m, Permanent TSB at €27m, Ulster Bank at €18m and KBC Bank Ireland at about €7m.

However, some have said that increasing the levy will simply see charges for customers increased.

What options does the Government have when it comes to banks?

Direction:

Since the 2008 bank guarantee and the subsequent bailouts of the various banks, the State has retained shareholdings in them, from minority stakes in some like Bank of Ireland to owning others like AIB and the EBS outright.

Successive governments have been loathe to interfere in the commercial operations of the banks but many have called on the Minister for Finance to exercise a much more socially focused direction when dealing with them.

Yet, this has been the conflict which arises when you mix politics and banking.

Banks are not driven by a social outlook, their job is to make money but it is politically unpalatable for politicians to stand over scandals like this.

Will Mr Donohoe break with tradition and force the hand of the banks?

Unlikely.

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