Thu, Jul 9, 2020
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Neasa questioned the Central Bank and NTMA about their responses to the current financial crisis, discussing how Covid-19 is affecting mortgages, consumer protection rights and Irish sovereign green bonds.
Neasa Hourigan TD: I thank Mr. Makhlouf for his opening statement. I appreciate that this session is focused mostly on monetary policy but I would like to go back to what we were just discussing and the point Deputy Doherty made. I have a few questions about the Central Bank’s regulatory response to the current financial crisis. During this crisis, as we just heard, many banks have offered mortgage payment breaks to customers. There is a deal of frustration about the availability of these payment breaks and how interest is and was being calculated during the break period. Similarly, we have heard concerns from people who had mortgages refused or offers withdrawn as a result of their employer being on the temporary wage subsidy scheme. Prior to the crisis we had the tracker mortgage scandal, which is still dragging on for some. The Central Bank is currently tasked with regulating nearly 10,000 firms providing financial services, among other responsibilities. With such an array of financial regulations to enforce, consumer protection can sometimes seem quite far down the list of priorities. What is Mr. Makhlouf’s view on the establishment, or re-establishment as it may be, of an independent financial consumer protection agency? Would a stand-alone agency better advocate for the interests of consumers, ensure redress and better enforce consequences for financial institutions that act in bad faith towards consumers?
Central Bank Governor, Gabriel Makhlouf: I will cite two things in response to the Deputy’s question. First, I do not agree that consumer protection is way down our list of priorities. Everything we do is ultimately about protecting consumers, and I have written about this on my blog recently. Our founding legislation referred to our focus being the promotion of “the welfare of the people as a whole” and I take that extremely seriously. Everything we do, whether monetary policy and monetary stability, financial stability, mortgage measures, rules for banks and the capital or buffers they need to sustain, or the moneylender rules that we recently amended, is ultimately about protecting the community’s interests one way or another. It is about promoting the welfare of the people as a whole. I do not see the tensions that some people see in our role. I absolutely acknowledge that there are different systems operating in different countries.
In Ireland, it makes quite a lot of sense to bring together the regulation of the financial system and the protection of consumers. We spend a lot of our time supervising the financial service providers. These are the same people who provide services to consumers. As I said, separate entities exist in other countries but creating one here would dilute the potential of our mandate, which is to be a single entity looking at the whole of what is going on with a financial service provider. That is my view but I acknowledge there are different regimes around the world. I emphasise, however, that I do not agree that consumer protection is not at the top of our mind. Everything we do is about protecting consumers.
Neasa Hourigan TD: To pick up on the issue of green bonds, €5 billion has been raised by the Irish sovereign green bond to date. I note the framework regarding the placement of the funds raised in green projects and the external validation of the fund’s green credentials. Why is that the amount being raised as a total of the fund? The last round was oversubscribed by investors and there is any number of projects, ranging from public transport and renewable energy to retrofitting, on which the funds could be spent. What determines how much of the country’s borrowing comes through the Irish sovereign green bond?
_Director of Funding and Debt Management at NTMA, Frank O’Connor: _ The Deputy is correct that the bond has raised €5 billion to date. We launched the inaugural green bond in October 2018, which raised €3 billion, and we then tapped it for a further €2 billion a year later, in October 2019. In fact, we had only intended to tap for €1 billion but we tapped the extra demand to which the Deputy referred for €2 billion. I would caution that there can sometimes be an element of overbidding in these matters. To look at the recent raising of the vanilla ten-year bond, there was demand for €60 billion. There is an element of overbidding because people know that we will scale back some of the orders. The genuine demand tends to be a little bit lower. The higher level of demand is not always genuine.
We are also conscious of allocations. As the Deputy will know, we have to allocate against eligible expenditure and look at the quantum of expenditure each calendar year. While there might be many projects in the future, we must ensure that investors are comfortable that we have projects against which to allocate. The likely pipeline of projects will allow us to launch more sovereign green bonds in the future. We are trying to strike a balance between investor demand, the pace of projects as they begin to be delivered, and looking ahead. We will do more in this area. I hope this gives the Deputy a little bit of the colour as to how these decisions are made.