Bulletin – March Quarter 2014 Developments in Banks' Funding Costs and Lending Rates 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 (Deans and Stewart 2012; Robertson and Rush 2013). The main findings are that the absolute levels of banks' funding costs and lending rates have fallen over the past year, and spreads between these rates and the cash rate have narrowed marginally. The decline in these spreads largely reflects the shifts in the composition of banks' funding liabilities and the narrowing of wholesale debt spreads. Lending rates have tended to move in line with funding costs over the past 12 months.

View the article