ESRI questions Noonan move to force banks into variable rate cut

Moves by Finance Minister Michael Noonan to push banks to cut their variable rates have been questioned by the country’s leading thinktank.

Kieran McQuinn, the Economic and Social Research Institute (ESRI) research professor, said fostering competition would be a better way to get banks to drop sky-high variable rates.

Prof McQuinn appeared to back the stance of Central Bank governor Patrick Honohan.

Mr Honohan said he did not want the power to force banks to lower variable rates, and said competition was the best cure for higher rates.

About 300,000 mortgage holders pay among the highest variable rates in the eurozone.

The high cost works out at around €300 a month more than the costs for a similar-sized mortgage in the rest of the European Central Bank area.

The most effective way to ensure there are lower rates is to improve banking competition.

“The lower the level of competition in the market, the higher the mortgage interest rate,” the paper found. High levels of arrears and larger numbers of trackers also restrict banks from lowering variable rates, the ESRI paper says.