Banks let funding 'myths' persist

by Adam Smith05 Apr 2012

An ANZ exec has claimed a link between the RBA cash rate and bank loan rates is a "myth" that banks let persist out of convenience.

ANZ Australia chief executive Philip Chronican has told an American Chamber of Commerce meeting in Melbourne that the "myth" of a link between the Reserve Bank's monetary policy and bank funding costs only arose in the 1990s, and persisted because of an extended period of stability in financial markets.

"I’ll be frank - the banks let this myth persist because it was convenient for them. It saved having to go into the very complex explanation about what really drove interest rates," Chronican said.

Chronican also refuted the claim that offshore funding costs were driving up bank rates. He claimed competition for deposits was the primary reason funding costs were tightening for Australian banks.

"It is customer deposits – by far the major source of bank funding – that are the driving force behind higher costs in the last few years. As banks look to decrease their reliance on wholesale and debt funding, they need to offer customers greater returns on their deposits to win their business," he said.

Related stories:

RBA may move, but banks will wait for ANZ

'Told you so', says ABA on funding costs

Deposit pressures easing for banks

 

COMMENTS

  • by Garry 5/04/2012 11:10:52 AM

    If lending out deposit funds are having a negative effect on costs then the lender needs to source funds elswhere such as the market where the real cost of funds is lower. For the sake of the Australian public they should be doing what they can to reduce the cost of borrowing as far as possible.

  • by Shane Hanson 5/04/2012 12:02:21 PM

    Ohhhhh these ARE the people who say, "Rip them off blind with illegal fees and charges; then LIE to them by giving them pamplets that says that they can do it, because they say so, and then add in monsterous fees for their excellence at lieing and thieving.

    Never mind how when you say, "Give me my money back", they then close your account on you.