Prior to the global financial crisis, there was a relatively stable relationship between New Zealand's Official Cash Rate and retail mortgage rates. Changes in the OCR, implemented by the Reserve Bank of New Zealand, were typically accompanied by a proportional change in floating mortgage rates. However, according to two RBNZ analysts, this relationship has deteriorated since the GFC and the OCR on its own has not been a good proxy for bank funding costs. In a research paper, Bevan Cook and Daan Steenkamp examine the change in the transmission of the OCR, and the role of other funding costs for retail mortgage rates since the GFC.By way of background, they observe that banks now place greater reliance on more stable (but more costly) sources of funding - relying on domestic deposits and long-term wholesale funding more, and less on short-term wholesale funding. This has resulted in a wider and more volatile spread between mortgage rates and the OCR. Also, not all changes in the OCR have passed through one-for-one into floating mortgage rates, as funding costs from other sources have sometimes been offsetting."We construct a comprehensive estimate of bank funding costs using a weighted average of the cost of domestic deposits, short-term wholesale funding and long-term wholesale funding," the authors write in a summary of the paper in RBNZ's Analytical Notes series. "Our results suggest that funding spreads have been larger post-GFC, and have had a larger impact on the level of fixed-rate mortgages than on floating rates," was one conclusion.There has also been a notable slowdown in the pass-through from policy and funding spreads to the floating mortgage rate. "The speed of pass-through to fixed-rate mortgages has slowed only slightly," the RBNZ's analysts observed.