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.