Commonwealth Bank is to use cheaper wholesale funding in preference to more expensive retail deposit funding, the bank said yesterday.CBA disclosed that its income from its A$376 billion pool of deposits was down 11 per cent last year.Presenting the bank's results for the six months to December yesterday, CBA chief executive Ian Narev said: "What we're seeing here is an ongoing challenge on deposit margins. You're going to see that across a number of businesses and that's one of the key things in this result."While wholesale funding is cheaper than a lot of retail funding at present that does not imply the bank is leaning towards reducing interest rates on loans.David Craig, the bank's chief financial officer, explained in an investor briefing that "the real peak or the spike in spot funding costs started around the time of Lehman Brothers in September/October 2008. And what that means is we've got another few months left where the cost of new funding that we are putting on the book is probably a little bit higher than the cost of funding it is replacing.""As we get towards the end of next year that stops, so a lot of the debate here has been around is wholesale funding cheaper than it was one or two months ago? The answer is absolutely 'yes'."But, in terms of how this impacts [on] funding costs, the right question is: 'Is it cheaper or more expensive than the funding it's replacing?'"Narev said the bank planned to manage the margin-volume trade-off very, very carefully. "Our deposits still roughly funded lending growth in this period", something he said was "not a strategic intent [but rather] a function of how the markets have been."Our view remains that there are two critical aspects for deposits on our balance sheet. Number one is liquidity management."What we will continue to do is make sure that we're not writing deposits that are eroding value to shareholders. And that's something which we don't announce targets for (a) because… [for] competitive purposes it would not be sensible and (b) it is something which we need to be prepared to look at quite dynamically."CFO David Craig added: "We think it would be very silly to [be] funding all of our growth trying to compete in an incredibly hot retail deposit market, and [be] hurting our shareholders by taking more expensive funding when there's cheaper funding available in the wholesale markets."Narev said, in response to a question from an analyst, that "we have decided that the best way of creating value for our shareholders is to go easier on the price lever, and just manage margins well while focusing on our customers.""We're constantly making a trade-off here… [with] what's the right way to create long-term value for our shareholders."