being processed. a lender can commence legal action where the borrower does not co - operate, where the borrower commits fraud, or in the event of breach of contract. as you can see the code is designed to buy time to allow a mortgage holder to reach agreement with their lender. it provides a de facto moratorium which continues so long as the mortgage holder is meeting their obligations of the new rescheduled agreement. the strengthened code also added in other measures to help provide some breathing space for distressed borrowers such as prohibition on penalty interest – prohibiting lenders from applying penalty interest or arrears charges to borrowers who take part in a mortgage arrears resolution process. this prohibition was introduced on the basis that banks shouldn ’ t make matters worse and add to arrears problems. the thinking behind the prohibition on charging penalty interest is that banks ’ actions should not exacerbate the financial problems of customers in distress. there is something to be said for looking at the treatment of standard variable rate customers from a similar perspective. traditionally, svrs were understood to adjust in line with competitive market conditions. current conditions are unusual in several respects. when the interest rate on so much of their mortgage portfolio is fixed at a very modest ( tracker ) spread over the ecb ’ s policy rate, some banks have found that even the performing part of their mortgage book as a whole may be unprofitable given their increasing cost of funds in the market. the increases in svrs implemented by some banks may thus be going beyond the traditional passingthrough of the cost of funds, instead seeking to make - up for what has proved to be an bis central bankers ’ speeches inadequate spread on trackers. the central bank does not have the power to set standard variable rates or other interest rates – nor does the government ( although as shareholder in many of the domestic banks it does have the opportunity to influence management actions. ) however, it may be that these actions are, on balance, self - defeating if they push more customers into arrears, adding to the mortgage arrears problem and ultimately costing more in terms of capital. we are looking closely at this issue, and we do have a statutory responsibility so far as it concerns the soundness of banks. accordingly we have decided to require any bank that has received government capital support to provide an impact analysis of any proposed standard variable rate increase in terms of the implications for its arrears position and future capital requirements,

of full or partial payments missed bis central bankers ’ speeches and the monetary amount of the arrears to date. it must confirm that the lender is treating the borrower ’ s situation as a marp case and let the borrower know the importance of cooperating with the lender during the marp process as well as notifying the borrower that if co - operation ceases, the protections of the marp no longer apply and the lender may start legal proceedings for repossession. a key element in the code, and an important protection for mortgage holders, is the requirement for banks to set out their different restructuring options and the criteria used for applying these. this is designed to allow consumers to understand better the options available and to help them to prepare for their meeting with the bank. as part of our next phase of the central bank supervisory work we are going to review how the lenders ’ process of determining the most suitable option for the borrower is working in practice. as i said earlier, following this review we will decide if we need to add further protections and whether some of the measures already in the code need to be strengthened. active outreach by lenders to consumers in pre - arrears is one area not currently covered in the code that we want to address. while some banks are showing best practice in this regard, and while some customers in pre - arrears are making early contact with their lenders, we will look closely at whether lenders could communicate more proactively in this area. we are vigorously policing this code. as i will explain shortly we are about to undertake a major supervisory initiative on mortgage arrears to assess the implementation of the code. in anticipation of this earlier this week, i advised bank chief executives to examine very carefully their compliance with the code and to ensure their processes and resources are up to the task. providing a breathing space as i said earlier, the ccma provides important protections for distressed consumers who are trying to meet their commitments. where a borrower co - operates with their lender, the lender must wait at least twelve months from the date the borrower is classified as a marp case, before applying to the courts to commence legal action for repossession of a borrower ’ s primary residence. importantly, legal action is also not permitted if the borrower is complying with the terms of any alternative repayment arrangement agreed with the lender or when an appeal by the borrower is