The major banks' reliance on funding from the international debt capital market has once again become the preoccupation of banking analysts, in the wake of the European sovereign debt crisis.Australian banks' debt issuance represents 10 per cent of global bank issuance, while Australia's share of global GDP is just one per cent. Relative to their balance sheet size Australian banks are among the world's biggest debt issuers.Westpac is the biggest bank bond issuer in the world, relative to balance sheet size, and Commonwealth Bank is number two.Citigroup banking analyst Craig Williams focused on the funding issue in a banking sector review published on May 28. Williams' report said: "We favour NAB and elevate ANZ to buy. This reflects their superior funding profiles."Williams described funding as the industry's Achilles' heel. ANZ and NAB are preferred because they have lower loan to deposit ratios than their peers. ANZ's additional advantage is that its Asian strategy gives it an edge in raising deposits.Williams said: "While all Australian banks face a need to lighten their short-term funding and improve deposit funding bases, it is a particular challenge for Commonwealth Bank and Westpac. Adding regional banking assets and aggressive growth rates in mortgage lending in the past year has seen a shift in the funding profile of these banks, having deteriorated in the past year as measured by their loan to deposit ratios."A Morningstar report issued on May 20 took a very similar line. Analyst David Ellis said: "Higher wholesale funding costs will place more pressure on bank product margins and tighter global funding markets will impact the ability of Australian banks to fund their wholesale debt requirements. "Westpac and Commonwealth Bank are the most exposed, with annual wholesale funding tasks of approximately $45 billion each, while ANZ and NAB need to source around $20 billion each."Commonwealth Bank Global Market Research reported in March: "Unfortunately for the banks, there is little to suggest that any easing in wholesale term funding or retail funding will occur over the near term, leaving the banks exposed to the return of margin compression sooner than the banks or the market would have anticipated at this point in an economic downturn."In the past the banks have managed to rebuild net interest margins reasonably solidly before competition intensifies and margin compression returns once again."Commonwealth Research has forecast that NAB will suffer the greatest margin compression over the next two years, while ANZ will be able to increase its margin.In a note issued on June 8, Macquarie Equities diagnosed the same problem but came up with a different view on how its affects the banks. "As credit spreads reprice for heightening default risk in Europe the major banks face a possible increase in funding costs. We believe this could amount to around 11 basis points of additional margin pressure, equivalent to four per cent of financial year 2011 cash earnings. "Commonwealth Bank and National Australia Bank are better positioned with their funding outlook relative to their peers."Combined with concerns about a softening