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Glenn StevensTHE Reserve Bank has dismissed claims by the big four banks that their costs are climbing faster than the cash rate.

In a submission to the Senate banking inquiry the Reserve says the banks’ funding costs have moved ”broadly in line with the cash rate” since the middle of last year.

The submission is at odds with inferences drawn from the RBA’s board minutes, suggesting it believed over-the-odds rate rises were justified.

”Most of the increase in the major banks’ funding costs occurred during 2008 and early 2009, at the peak of the dislocation in markets,” the submission says. ”Since mid-2009 the major banks’ overall funding costs are estimated to have moved broadly in line with the cash rate, reflecting offsetting factors.”

Deposits have become more expensive for banks relative to the cash rate, as has wholesale funding, but at the same time the cost of short-term debt has been falling, resulting in a steady cost of funds relative to the cash rate for over a year.

Regional banks’ funding costs have been increasing faster.

The statement suggests the RBA does not believe the claim made by the Commonwealth Bank on Melbourne Cup day that it lifted its mortgage rate 45 basis points instead of 25 because of an increase in ”wholesale funding and retail deposit costs”.

Submissions from the big four are yet to be published on the inquiry website.

The RBA said the big banks’ total funding costs had climbed 90 to 100 points above the cash rate since the first rumblings of the financial crisis in mid 2007. But they had more than made up for that by lifting their mortgage rates 120 points beyond the cash rate over the same period.

The RBA expects the big four’s wholesale costs to rise from here on as cheaper long-term loans expire and are replaced by more expensive ones. But it expects the higher cost to be modest, ”around 5 points over the next year”.

The Reserve expresses concern about an easing in lending standards before the crisis, saying it led to housing stress, particularly in ”parts of south-west Sydney”.

Story by Clancy Yeates and Peter Martin www.smh.com.au

Tags: banks, economy, finance, interest rates, money

View the original article here

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