Developments in Banks' Funding Costs and Lending Rates

Benn Robertson and Anthony Rush
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Benn Robertson: Reserve Bank of Australia
Anthony Rush: Reserve Bank of Australia

RBA Bulletin (Print copy discontinued), 2013, 63-70

Abstract: This article updates previous Reserve Bank research on changes in the composition and cost of banks' funding and the impact of these changes on lending rates (Deans and Stewart 2012). The main findings are that the absolute levels of funding costs and lending rates have fallen over the past year, while spreads between these rates and the cash rate have widened. This latter development primarily reflects a continuation of strong competition for deposits. Over recent times, this competition has shifted from term deposits towards at-call savings deposits, and customers have responded to the shift in the relative returns on these products. Although the recent narrowing of spreads on long-term wholesale debt will eventually put downward pressure on funding costs, developments in deposit competition will have a larger impact on movements in funding costs. Lending rates have tended to move in line with funding costs over the past 12 months.

Keywords: funding costs; lending rates; interest rates; deposits; deposit competition; wholesale debt; wholesale funding; funding composition; bank funding; banks; net interest margin (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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