Funding conditions for banks have improved in recent months, according to the latest Reserve Bank Statement on Monetary Policy. Funding costs, relative to the cash rate, were unchanged during the September quarter, and wholesale market spreads fell sharply.The RBA said: "Bank funding costs, relative to the cash rate, have risen by about 50 basis points over the past year but are estimated to have remained broadly unchanged since the previous Statement. "In absolute terms, interest paid by banks is declining, as is interest received. The rise in bank funding costs relative to the cash rate over the past year largely reflects the increased cost of deposits."The interest on deposits is largely in response to pressure from banks and regulators to secure "notionally more stable" funding sources.The RBA said: "More recently, the average quoted rate on the major banks' at-call deposits has fallen by around 25 basis points since the previous statement, in line with the reduction in the cash rate."The RBA said average interest rates on new term deposit "specials" at the major banks remain well above those on equivalent bank wholesale funding instruments.Since the last Statement was issued around A$23 billion of bank debt has been issued, with primary market pricing tightening considerably, Banks have used wholesale markets to roll over maturing debt or retire existing government guaranteed debt while funding balance-sheet growth with increases in deposits.A large share of wholesale issuance has been conducted offshore and for terms of three to five years.The improvement in financial markets since the previous Statement has caused major banks' unsecured and covered bond spreads to tighten by more than 50 basis points relative to Commonwealth government securities. These spreads are at their lowest level since the intensification of euro area concerns in mid-2011. Yields on bank bonds are at historically low levels.