The regular audience on here will know that there is deep skepticism about the recently announced targets to deal with distressed mortgages. Although the announcement on 13th March 2013 was trumpeted by Minister for Finance Michael Noonan, he has since been eager to pass the buck for monitoring the targets to the Central Bank of Ireland. In the Dail this week, he stated that the person responsible for monitoring the targets and enforcing action was the deputy governor and Financial Regulator, your friend and mine, Matthew Elderfield who is scheduled to join Lloyds Bank in October 2013. And beneath Matthew, the person responsible is Fiona Muldoon, the Paddy-Power-favorite to eventually take over the deputy governor role.
So, at the start of July 2013, we should see how effective an employee Fiona – pictured above – is. If the banks fail to offer “sustainable solutions” to 25,000 mortgage account holders equating to 20% of the 125,000 principal residence and buy to let mortgages that were in arrears at the end of December 2012, then the trumpeted targets will not have been met. The view on here is that this target is fantasy but if it is meaningfully met, then perhaps Fiona is really the woman for the job.
However, we also learned this week that the Central Bank’s main stick – forcing banks to assume nil future cash flow on distressed mortgages, save for the value of the associated property – may be utterly useless. This is a “stick” because if banks have to write off a large part of their loans, they will make big losses and may need new capital. Remember, there are already questions over whether this approach by the Central Bank will conflict with International Financial Standards. Now we find out that banks which don’t like the stick can simply upsticks – no pun intended! – and change their regulator. For example, Ulster Bank could change its regulator from the Bank of Ireland to the Bank of England, and this is not pie-in-the-sky, there were rumours in 2012 that Ulster Bank was considering the change, well before these targets were mooted.
The information above is based on parliamentary questions and responses. Deputy Doherty’s are from this week, the Deputy McGrath question (with emphasis added in bold on here) is from 2012:
Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Question No. 252 of 16 April 2013, if he will confirm the name or names of the principal person or persons at the Central Bank of Ireland responsible for setting and monitoring targets at the banks for dealing with distressed mortgages.
Minister for Finance, Michael Noonan: I am informed by the Central Bank that setting and monitoring targets in this area is the responsibility of the Deputy Governor (Financial Regulation) of the Bank who will delegate operational responsibility to the Director, Credit Institutions & Insurance Supervision and the Divisional Supervisory teams.
Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Questions Nos 64 of 12 July 2012 and 251 of 16 March 2013, the power the Central Bank of Ireland has to compel banks to write down the value of problem loans to the value of underlying security if the bank changes its primary regulator, for example, if Ulster Bank changes its regulator to the Bank of England and the British Financial Services Authority..
Minister for Finance, Michael Noonan: The Central Bank (CBI) has informed me that where a bank’s operations in this country are conducted under a licence granted by a regulator in another country (e.g. the UK in this example), the CBI does not have the prudential powers to set problem loan provisioning rules for that bank
The Central Bank’s Code of Conduct on Mortgage Arrears applies to mortgage lending activities with borrowers in respect of their principal private residence in the State. Compliance with the Code is mandatory on all mortgage lenders regulated by the Central Bank.
Deputy Michael McGrath: To ask the Minister for Finance his views on the impact for customers of suggestions that Ulster Bank is moving its regulatory supervision to the Bank of England; and if he will make a statement on the matter. [34206/12]
Minister for Finance, Michael Noonan: I have been informed by the Central Bank that it has not received any formal application to change the regulatory or legal status of Ulster Bank Ireland Ltd from that of a subsidiary of Royal Bank of Scotland Group. However, there are some informal indications that Ulster Bank Ireland Ltd may change its regulatory status and be subject to regulation by the Bank of England and the UK Financial Services Authority as in the case of its parent, Royal Bank of Scotland.
That option is available for all banking groups in terms of how they operate in jurisdictions under European regulation, whether as subsidiaries or as branches.
The Central Bank has full prudential and conduct of business supervisory control over licenced banking subsidiaries. For banks that would opt to operate as branches, the Central Bank would retain powers over conduct of business regulation and liquidity requirements. Accordingly, the Central Bank would maintain its full consumer protection remit over all banking entities operating in Ireland irrespective of their regulatory configuration