i said at the outset, if you ’ re a depositor who is prepared to shop around, now is a very good time to find favourable rates. it ’ s also important to put these things in a longer - term context. the tendency for competition to put downward pressure on banks ’ net interest margins is not new – it ’ s been going on for a couple of decades, to the benefit of both borrowers and depositors. having said all that, there ’ s a legitimate question as to how far the most recent step - up in competition for deposits will prove to be sustainable. there do seem to have been some instances of anomalously high deposit rates being offered on occasion. it seems likely that, over time, banks and other deposit - takers will get better at managing these more competitive conditions and avoiding paying rates that are unnecessarily high relative to the market. there are other reasons to think that the factors giving rise to the current wave of competitive pressure might prove to be partly transitory. in particular, conditions in alternative funding markets have been improving. a further recovery in securitisation markets, for example, would help lenders to diversify their funding sources and probably help to take some pressure off the deposit market. similarly, any further narrowing of risk spreads in other wholesale funding markets would work in the same direction. possibly reflecting some of these factors, there does seem to have been some easing in deposit margins recently. on the other hand, we should expect the increased emphasis on stable funding sources to continue. it is also possible that the recent wave of competition has itself helped to make depositors more price - sensitive. with the availability of special rates being more widely advertised, households may be learning to be more active, and more sophisticated, in seeking out the most favourable rates. if so, then we would expect this to have an ongoing impact on the dynamics of the market. in a nutshell then, a good deal of what is happening in deposit markets is not new, but is actually a continuation of existing trends. some of what is new might prove to be temporary, but some of it is likely to persist. to me, that sounds like an environment where competitive pressure in the deposit market is going to remain strong, even if some of the recent intensity has been somewhat overdone.

made that point, it ’ s also clear that the trend has been amplified by factors flowing specifically from the financial crisis. let me turn to that part of the story now. for some time, banks have tended to operate with a two - tier pricing structure on their term deposits, offering significantly higher - than - average rates at certain points on the maturity spectrum. often these are at non - standard terms like four or seven months. these “ specials ” have been the part of the market where banks competed most vigorously for price - sensitive customers. the average rates on these specials are shown in the accompanying chart ( graph 5 ). in the years just prior to the crisis, the pricing of these term - deposit specials was fairly stable. they were typically priced at about 50 basis points below the bill rate. as i noted at the outset, that margin has now shifted to around 100 points above. graph 5 another indication of more intense competition is that institutions have become more active in offering special rates at terms of longer than a year, and often out to as much as five years. they have also begun to offer higher rates in other parts of the market. rates on “ nonspecial ” term deposits have tended to move up closer to the specials, and margins on at - call deposits have moved in the same direction, though by a lesser amount. so, clearly the intensity of competition has stepped up. this has been a consequence of two factors associated broadly with the crisis and with the post - crisis environment. first, the crisis has focused the attention of investors, regulators, rating agencies and, not least, the banks themselves, on the need for stable sources of funding. what constitutes stable funding is, of course, a good question. there is some tendency for analysis in this area to be overly simplistic, and in particular to assume that deposits are unambiguously more sticky than various forms of wholesale funding. that might not always be the case. within short - term wholesale funding, for example, holdings of bank paper by domestic super funds are actually likely to be quite stable. conversely, those types of deposits designed specifically to appeal to price - sensitive customers will be less stable than others. so in analysing funding stability, it is important to focus on the specific characteristics of each instrument, and not just to rely on broad summary measures like aggregate deposit ratios. that said, markets have clearly been taking a general view that banks should source more of their funding from deposits rather than from