Below are some fascinating comments from RBA Governor Glenn Stevens in 2010. Worth a quick read. Even more relevant today it seems.
"Since the middle of 2007 there clearly has been an increase in their overall costs of funds relative to the cash rate. That has been reflected in the widening of the margins. It has also been reflected in the cash rate being roughly, I would say, about 100 points lower than it would have been, to take account of that margin change and roughly—not exactly in any given month but roughly speaking—offset it so that the loan rates in place in the economy are, roughly speaking, about where we think they ought to be for the macroeconomic management needs that we have. We cannot finetune this on a month-to-month basis; we could not claim to do that. But over time, in the broad sweep, the big amounts, roughly speaking, have been offset by different behaviour by us on the cash rate compared to what we would have done otherwise." My emphasis.
"Business models that took particular advantage of low-cost wholesale funding or securitisation were able to provide a very competitive edge to certain markets, particularly—though not only— markets for mortgage lending. But investors changed their behaviour in 2007-08. The compensation that they require for taking risk now is higher. Therefore, wholesale funding and securitisation are more expensive. In the case of securitisation, in addition costs have risen in part because certain investors completely exited that market and are very unlikely to return. So there has been an increase in the cost which has affected all financial institutions but to varying degrees. Therefore, because the degree varies, it has also affected the competitive landscape. Some business models that did well in the earlier state of the world of course find it hard now. Part of the competitive advantage that they had for a time has been eroded by changes in market conditions. The current relationship between variable mortgage rates in particular and market funding costs is making it harder than it used to be for those lenders that rely on securitisation or wholesale funding to compete with the major institutions that have a more diversified funding base.
The changed attitude to risk also affects the locus of competitive forces. Four years ago the competition was all in lending money. There was very intense competition to lend. But now there is very intense competition to raise money on the part of financial institutions. Other things have happened as well that affect the competitive landscape, but this is a very fundamental change in the state of the world. "