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Developments in Banks' Funding Costs and Lending Rates

Author

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  • Eduardo Tellez

    (Reserve Bank of Australia)

Abstract

This article updates previous Reserve Bank research on how developments in the composition and pricing of banks’ funding have affected their overall cost of funding and the setting of lending rates. The main finding is that the spread between the major banks’ outstanding funding costs and the cash rate narrowed a little over 2014. This was due to slightly lower costs of deposits combined with a more favourable mix of deposit funding. The contribution of wholesale funding to the narrowing was marginal as more favourable conditions in long-term debt markets were mostly offset by a rise in the cost of short-term debt. Lending rates declined a little more than funding costs, reflecting competitive pressures.

Suggested Citation

  • Eduardo Tellez, 2015. "Developments in Banks' Funding Costs and Lending Rates," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 55-62, March.
    • Handle: RePEc:rba:rbabul:mar2015-06
    as

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    File URL: https://www.rba.gov.au/publications/bulletin/2015/mar/pdf/bu-0315-6.pdf
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    References listed on IDEAS

    as
    1. Daniel Fabbro & Mark Hack, 2011. "The Effects of Funding Costs and Risk on Banks' Lending Rates," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 35-42, March.
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    Cited by:

    1. Cottrell, Simon & Karpavičius, Sigitas, 2021. "Does foreign monetary policy drive Australian banks' wholesale funding costs?," Global Finance Journal, Elsevier, vol. 50(C).
    2. Kelsey Wilkins & George Gardner & Blair Chapman, 2016. "Developments in Banks’ Funding Costs and Lending Rates," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 21-30, March.

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