6 April 2010

Editor
The Age
Letters to the editor
Delivery by email:
letters@theage.com.au

Dear Sir or Madam,

Re: “Let’s see the flip side of bank funding costs” by Prof. Milind Sathye page 5

I was disappointed to read the article by Prof. Sathye as he may mislead readers by selectively using data to support his opinion editorial.

It is very clear from the latest Reserve Bank’s Financial Stability Review that banks’ funding costs still remain elevated. Any argument that implies banks’ funding costs are below pre-global financial crisis levels is wrong. The Reserve Bank noted that:

“Spreads in wholesale markets more generally have narrowed further, though they remain higher than pre-crisis levels.^1”

Prof. Sathye argues that the costs of deposits have come down yet the Reserve Bank noted that heightened competition for deposits has added to banks’ average funding costs relative to the cash rate. Prof. Sathye then asserts that banks have received a $1.34 billion taxpayer subsidy through the wholesale funding guarantee. On the contrary, banks have already paid taxpayers over $1 billion for the guarantee and will end up paying more than $5 billion in total.

Finally, the Australian Bankers’ Association refutes the claim made by Prof. Sathye that we ‘forgot’ the cost of borrowing from international markets in our fact sheet. This is incorrect. The ABA has used recognised measures for the cost of short-term and long-term wholesale funding.

Solid healthy banks are vital to Australia’s growing economy. The ABA welcomes debate about the banking industry in Australia, but hopes that it can be based on all the facts.

Yours sincerely,

Steven Münchenberg
Chief Executive Officer
Australian Bankers’ Association