maturity, changes in the pricing flows through the whole term deposit book quickly. hence movements in these rates can be one of the biggest short - run influences on changes in overall funding structure. while most of the competition among banks has been for term deposits, banks have also offered more attractive transaction and savings accounts. they are paying higher interest rates on these accounts and are offering greater functionality. the increase in the value of funds invested in these deposits has largely been placed in online saver accounts and accounts with introductory bonuses and / or bonuses for regular deposits. banks have reported little growth in the value of low - interest transaction - style deposit accounts. at - call online saver accounts are generally assessed to have more rapid run - off rates under the basel iii liquidity standards, so they will not be particularly attractive from the banks ’ point of view once those liquidity standards take effect from the beginning of 2015. that does not seem to have affected the pricing of these products yet, but it will be interesting to see how that evolves both in terms of pricing and product design as we approach that date. cost of funding having discussed the structure of funding, i will now turn to the cost of that funding. the reserve bank uses a wide range of sources to derive our estimates of banks ’ funding costs. we use data reported by financial institutions to apra and banks ’ regular profit statements to the market to track the composition of funding. we monitor the prices offered on various forms of deposit accounts, and maintain a comprehensive database of wholesale funding, which is updated issue by issue. we supplement all of this with extensive consultations with financial institutions, big and small. the analysis presented contains our best estimates. but there remains a degree of imprecision around them. moreover, as i mentioned earlier, our estimates are for the system as a whole, not for any particular financial institution. that said, in summary, our estimate is that the absolute level of banks ’ funding costs fell from mid 2011 to february 2012, but by less than the reduction in the cash rate. there were particularly pronounced increases in the cost of term deposits and long - term wholesale debt relative to the cash rate as financial market conditions deteriorated in late 2011. deposits competition for deposits, which had moderated somewhat in early 2011, intensified again in late 2011. consequently, our estimate is that while the cash rate has fallen by 50 basis points since mid 2011, the major banks ’ average cost of deposits has declined by about 25 basis points. in other

when growth slows. this is not to argue that the sort of exchange rate changes which have occurred in asia are helping to bring about a new and beneficial equilibrium. they are, in fact, very damaging, not just because of the inappropriate price signals they embody, but because of the high interest rates used to contain the exchange rate movements, and the damage to firms which have borrowed in dollars. much more modest changes would have achieved an improved competitiveness, and as far as capital flows are concerned, big movements in exchange rates seem to be inhibiting rather than encouraging capital flows, by worsening the basic situation in these countries, reducing profitability, limiting gdp growth and creating substantial policymaking uncertainty. it might be worth noting, too, that in the mexican case, the large nominal exchange rate fall which was initially seen ( in 1994 / 95 ) as being an important part of the corrective process has been more - or - less offset by subsequent inflation, so that the improvement in the real exchange rate and competitiveness has been largely lost. when people used to argue about the correct sequencing for the deregulatory process, they recognised that financial deregulation should come last, because if there remained any opportunities for disequilibrium profits in the meantime, a very open financial sector would allow these to be exploited. - 11 - i have already noted how important it is to improve prudential supervision in these countries. this is not controversial, although putting it into practice will be difficult and time consuming. one more - controversial element would be an effort on the part of the prudential authorities in the capital supplying countries to go beyond assuring themselves that their own banks are acting prudently and - in addition - asking whether their actions may be putting the recipient country ’ s financial institutions at risk. this would seem to require a greater degree of co - operation than exists ( or is envisaged ) at the moment. in short large and volatile capital inflows are an inevitable part of the international context in which these countries operate. even with a floating exchange rate, very large medium - term exchange rate changes can be expected. this will put a lot of pressure on the solvency of firms and, more particularly, banks. you therefore need a sound, well - supervised and risk - averse banking system. this is an essential part of a deregulated financial market, but one that many asian countries lack. it may not be possible to return to the highest