The sums behind ‘taxing’ the banks into a rate cut

Yesterday we were on the Sean O’Rourke show discussing variable rates on RTE Radio. We mentioned how doubling the ‘tax’ on banks won’t actually change anything. The mechanisms were briefly covered and we got a few emails asking for clarification so here it is.

The ‘levy’ was part of the Finance Act 2014 which imposed a new annual levy on financial institutions aiming to raise €150 million per annum for 3 years.

This sum is payable on October the 20th in each year (2014-2016) and it applies to a financial institution that is the holder of an Irish (or equivalent EU) banking licence or is an Irish (or equiv EU) building society that was obliged to pay DIRT – unless the amount required to pay in 2011 was not more than 100k.

The main outcry is centred on variable rates for primary home dwellers in particular. So how much of that debt is out there?

We know there are about 300,000 ‘loans’ but the quantum of debt is €39.638m which is about €3bn …

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What is happening with fixed rates?

We have been asked a few times about fixed mortgage rates and why they are lower than standard variable rates at the moment.

This has been going on for a few months in the mortgage market and the reason is fairly simple, lending rates are going to drop over time.

The one year fixed rate has traditionally been one that is used to attract business to a bank or building society. They are often a loss leading rate and after availing of it the person goes onto a higher rate or another fixed rate so we have to strip them out.

But from the 2yr rate onwards you normally paid a premium over and above the standard variable rate. So what is happening?

Lower fixed rates mean that banks are going to capture a margin that is likely to decline in the near future. The Euro yield curve is below.

What you see is that it is negative (below zero) for many years into the future, in fact, it’s only hitting …

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Nyberg report shows that Brokers had nothing to do with the crash

On page 21 of the report ([footnote 27]- available on BankingInquiry.gov.ie) the following appears:

Mortgage intermediaries began to emerge as a force in the residential mortgage market in the mid-1990’s, initially as a distribution channel for non-branch based mortgage lenders. Due in part to alliances with estate agents they exercised significant control over the “first time buyer” market in particular. This market was viewed by lenders as an attractive market segment and key for customer acquisition and exit financing for development lending.

At the peak of the market in 2005 mortgage intermediaries accounted for about 45% of new residential mortgage loans. Against this background, intermediaries were able to leverage their relationships with lenders pushing for better mortgage terms (and sometimes larger loans). This led to a considerable reduction in bank margins (interest and commission). Many banks sought to compensate by increasing loan volumes to maintain earnings. While these changes impacted on the mortgage market, mortgage intermediaries had only a limited and indirect impact on the banking problems which are the subject of this …

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Best Deposit rates in Ireland March 2011

The best deposit rates presently available in Ireland are as follows:

Best Demand Account:     Ulsterbank Special Interest Deposit 4%* Best 1 month deposit:      NIB eSaver 3% Best 3 month deposit:      PTsb 3mth Fixed 2.5% Best 6 month deposit:      PTsb Interest First 3.25% Best 12 month deposit:    Nationwide UK (Irl) 3.65%

We can find the best options for you on other terms or go through the various deposit choices available if you want help navigating the market call us on 01 679 0990

*To a maximum of €15,000

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Best deposit rates in Ireland November 2009

The lenders offering the best deposit rates are listed below with the highest in each category being the one we have shown.

Best demand account: INBS 3.75% (up to €20,000), Halifax 3.75% (up to €10,000), Anglo Premium Demand 3.1% – no restrictions

Best 7 day notice: Anglo 7 Day Notice 1.6%

Best 1 Month/30 Day: PTsb 30 Day Notice 3.25% (min. €10,000)

Best 3 Month: Ptsb 90 Day Fixed 3.25% & Investec 3 Month Fixed 3.25% (min. €20,000)

Best 6 Month: Investec 3.25%

Best 9 Month: Investec 3.5%

Best 1 Year Fixed : Anglo 3.6%

If you want to consider your deposit options you can contact us on 01 679 0990, we don’t have deposit agencies with every lender listed in the top position, so in some cases we’ll have to send you direct but in any case we can still help you choose the best deal on the market. All rates are up to date as 9th November 09′ and are subject to change.

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The Regulator is good for business… In particular State owned business

In browsing the site itsyourmoney.ie today I noticed something interesting. First of all there is a section for ‘savings & deposit accounts’ then a separate one for ‘state savings schemes’ (note SSIA’s are long gone), but the ‘savings schemes‘ are all really just deposits! Check out their rates too! lol.

If you go to ‘compare costs and benefits’ on deposit accounts you get a list, but in with the banks who shows up? An Post, so they are either a ‘state plan’ or they are not? Indeed it seems both apply, they have their own section, and they are also in with the rest of the financial institutions.

If you go to compare products and click on a high street bank name, it takes you to a page where it shows the product details of whatever that bank has on offer, however, if you click on the name …

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