In a relief for banks, the Reserve Bank will increase the size of the Term Funding Facility and make the facility available for longer. A fixed interest rate of 0.25 per cent continues to apply, with funding available (as before) for three year terms.
This change brings the total amount available under this facility to around A$200 billion.
To date, ADIs have drawn $52 billion, the RBA said yesterday of a facility rushed into place in March.
Thus banks, having deferred making fullest use of the fixed-price, three-year funding on offer, piled into the TFF for once over the last week. On Friday the RBA had said the total stood at $41.5 billion, the total as of the Wednesday of that week.
“This will help keep interest rates low for borrowers and support the provision of credit by providing ADIs greater confidence about continued access to low-cost funding,” the governor, Philip Lowe purred in the monthly statement on monetary policy.
“Australia's financial institutions have … access to high levels of liquidity,” Lowe said, understated even by his standards.
“Borrowing rates are at historical lows,” Lowe said, nowhere near half the story.
As banks and many depositors know, deposit rates are headed for zero in Australia.
For five months now, short-term money market proxies for the cash rate target, including the Interbank Overnight Cash Rate that was once the main lever of RBA monetary control, have traded at levels half (and often less) of the nominal target for the cash rate of 25 bps.
To make the renewed TFF work for smoothly for bank, the strict rules linking each bank’s funding limits to the ebb and flow of business credit will be side-lined, to a degree.
A new supplementary funding allowance available to all ADIs from 1 October through to 30 June 2021 is the policy innovation unveiled yesterday.
The supplementary allowance will be fixed at 2 per cent of an ADI's overall credit, the RBA said. This amounts to $57 billion across all ADIs.
Westpac economists, in an assessment of the reformed TFF, said ‘the guaranteed nature of access (via the supplementary allowance) may cause banks to reassess their short term drawdown on the initial allowance (being more stable than the lending-linked additional allowance).
Westpac drew together the insight shared by banks during the June quarter profit season.
CBA reported a TFF limit of $31 billion, “with just $1.5 billion drawn at 30 June leaving significant scope for funding through the next 6 months. CBA appear to have the most scope to ease back on their statement that they would drawdown their full TFF limit,” Westpac said.
NAB reported an overall allowance of $36 billion.
ANZ “reported that it had already drawn down $7 billion of its $12 billion initial allowance with a further additional allowance of $8.3 billion. ANZ’s total limit will lift to $28 billion” under the new RBA formula.
Westpac had drawn $4 billion and its new limit will be $33 billion.