Banks who fail to pass on increased interest rates to deposit holders should be penalised, the chair of the Oireachtas finance committee has said.
John McGuinness said all the banks would appear at the committee in early September to answer questions about interest rates, as would the Banking and Payments Federation of Ireland.
Mr McGuinness also said he agrees with plans to extend the banking levy into 2024, but said it should be increased and that banks should be further penalised if they do not pass on interest increases to savers.
The Fianna Fáil TD said it was not acceptable that banks are failing to offer higher rates of interest for savings accounts, while at the same time charging higher rates for borrowers.
His comments come after Minister for Higher Education Simon Harris said Irish banks have been "complete and utter laggards" when it comes to passing on increases in interest rates to savers. Furthermore, Minister for Finance Michael McGrath also confirmed that the bank levy would be extended into 2024.
Mr McGuinness said: "The levy should be extended and include the financial services sector, and it should be increased. Banks that don’t comply should be further penalised. The levy is not yielding enough, and it is not doing the job it was supposed to do."
However, one leading economist has said any move by the Government to get involved in dictating policy in the banking sector could backfire.
Austin Hughes said that if banks raise interest rates for depositors, they could potentially do the same for borrowers.
"The world is awash with money and that does mean deposit rates are relatively low globally," he told Newstalk radio.
"Irish deposit rates are not that far out of line with our euro area counterparts, and significantly, if interest rates and savings on deposits are raised, there is the risk that banks pass that on in the form of higher rates for borrowers."
The European Central Bank has hiked interest rates nine times since July last year. The main interest rate now stands at 4.25 per cent compared to zero 13 months ago. While the Irish banks have increased rates for borrowers there has been little change for savers.
In recent months financial analysts here have warned that the failure of Irish banks to increase deposit interest rates in line with ECB hikes is costing Irish savers more than €120 million every month. Meanwhile, banks have been reporting healthy profits, driven by the rate hikes.
