Banks Cost of Funding
- Thread starter JIT
- Start date
AFAIK, aussie banks borrowed heavily from the US Fed when IRs there went to zero.
so i'm not sure where this increased cost of funding mantra has come from.
i'm sure TF or hobo-jo could sort you out there.
so i'm not sure where this increased cost of funding mantra has come from.
i'm sure TF or hobo-jo could sort you out there.
That's a good graph and it certainly does paint a pretty picture, but it's still "this is how it is but we won't say why".
The Effects of Funding Costs and Risk on Banks' Lending Rates
Composition of Banks' Funding
Banks operating in Australia have diverse funding bases, with most funding sourced from deposits and short-term and long-term wholesale debt. These funding sources have, however, undergone significant change, reflecting a reassessment of funding risks by banks globally as well as regulatory and market pressures. In particular, banks in Australia have increased their use of deposits (particularly term deposits) and long-term debt, as these funding sources are perceived to be relatively stable (Graph 1).
The increases in deposit and long-term debt funding have facilitated a decline in the share of funding sourced from short-term wholesale debt (domestic and foreign). The share of securitisation has also fallen since the onset of the financial crisis, as the amortisation of the outstanding stock of residential mortgage-backed securities (RMBS) has exceeded new issuance.
Furthermore, Australian banks have bolstered their balance sheets by raising equity, through a combination of retained earnings and share placements. This has led to an increase of nearly 1 percentage point, to 7½ per cent, in the share of equity in the major banks' funding liabilities since mid 2007.
Once again, there's no information as to what has caused funding costs to go up.
Who is lending the money in the wholesale Market? Why are their rates of return higher? Who sets those rates?
Saying it's all from deposits and share issuance is bunkum.
Who is lending the money in the wholesale Market? Why are their rates of return higher? Who sets those rates?
Saying it's all from deposits and share issuance is bunkum.
If you were to personally lend money to the united states today would you lend at a higher rate of return (% interest) today than you would say 2 years ago?
Your nodding yes correct.. well theres your answer to were and how the increase in funding cost come about I cannot put it more simplistic than that.
Your nodding yes correct.. well theres your answer to were and how the increase in funding cost come about I cannot put it more simplistic than that.
But I can't follow that line of reasoning. Who is lending money at wholesale rates to the banks and what reasoning is behind the increase in margin?
If it's all touchy feely slap on the back stuff, then an unregulated set of entities are lending money at the top end. Imagine a cartel margin call.....
If it's all touchy feely slap on the back stuff, then an unregulated set of entities are lending money at the top end. Imagine a cartel margin call.....
