Minister Donohoe notes publication of report highlighting link between mortgage rates and bank capital
Foilsithe
An t-eolas is déanaí
Teanga: Níl leagan Gaeilge den mhír seo ar fáil.
Foilsithe
An t-eolas is déanaí
Teanga: Níl leagan Gaeilge den mhír seo ar fáil.
The Minister for Finance and Public Expenditure and Reform, Paschal Donohoe TD, today notes the publication by his Department of Risk Weighted Assets in Ireland - The Link to Mortgage Interest Rates a report that seeks to explain the link between bank capital and mortgage pricing in Ireland.
Irish mortgage rates are higher than the European average for a number of reasons including the fact that more than four in every ten mortgages in this country are still loss making trackers. While this is generally acknowledged, what is not widely discussed is the fact that Irish banks have to hold far more capital on a mortgage than their peers in other countries, which is due in large part to a very high level of historic losses.
The report explains how these historic losses influence the calculation of bank risk weighted assets (RWAs) and therefore their capital, profitability and mortgage pricing. The focus of the paper is on RWAs which are only one, albeit a crucial component of the equation that determines the amount of equity a bank must hold against its loans.
Minister Donohoe stated:
“As this report shows, the current application of bank capital rules means that the very significant losses from the last crisis still have a considerable influence on how Irish banks price their products. As banks in other Eurozone states do not have a comparable legacy burden, it is important that this is recognised in public debate when we compare mortgage rates.
In light of this, I have asked my officials to consult all interested parties and explore whether there are any innovations we can pursue that would help offset this cost and bring about lower rates for consumers e.g. alternative long term funding models.”
The following are the paper's main conclusions:
ENDS