Ann: Shaw and Partners Emerging Leaders Presentation, page-42

Market interest rates are not set by banks with direct reference to the RBA rate (ie RBA rate plus premium). Most of the banks are 60-70% self funded via depositor funds. Much of this cash is free and the remainder may link loosely to central bank rate, but will not be determined with direct reference to it. The remainder of funding (other than the 10% or so coming from equity which is relatively expensive for banks from a capital perspective) comes from the international wholesale funding market. They may also move loans into securitisation vehicles to essentially free up capital, potentially gain access to cheaper funding, etc. The wholesale funding market has no reference really to RBA rates, but does have a real impact on cost of funds and thus what rates banks can offer on loans to customers. Add into the mix security taken, credit risk, liquidity, tenure, return on capital to attract equity required to expand lending, risk appetite/sentiment, macro factors etc and they'll work out what rates to lend at.