The change, which is grabbing attention within banks, is the blowout in the gap or "spread" between the three-month bank bill swap rate (BBSW), an interbank funding market, and the overnight index swap, which reflects bets on the path of official interest rates. This "spread" is significant because when banks borrow from institutional investors, the interest rate they pay is referenced to BBSW. Mortgages, on the other hand, broadly move in line with official rates set by the Reserve Bank. US President Donald Trump managed to push through corporate tax cuts. Credit:Bloomberg When the spread between these two rates widens, it squeezes banks' profit margins. This year the spread has blown out from about 20 basis points to more than 50 basis points, levels not seen since late 2011, when Europe's sovereign debt crisis was in full swing. Macquarie analyst Victor German this week said he did not believe the trend reflected deep-seated problems, but if costs remained at these levels for another month or so it would pressure banks to raise interest rates.

"While this is negative for banks’ short-term returns, we believe the spike in the funding costs is not structural," Mr German said. "However, should costs remain elevated for a prolonged period, we believe that banks are likely to raise their mortgage rates to offset it." The market is unsure of exactly what lies behind the latest trend and whether it will be temporary, and importantly, bank funding markets continue to function well. Loading Some analysts believe the recent changes could be a knock-on effect of US corporate tax cuts, which may prompt US technology giants to take their cash out of overseas corporate bonds, including those issued by banks. The changes may also be a result of US interest rates rising, which is causing investors to demand a higher rate when they lend to big corporations.

"The most likely cause is a recognition that interest rates in the US are now going up," principal of credit market consultancy ADCM Services, Philip Bayley, said. Whatever the precise cause, it is estimated that every 10 basis point rise in the spread lowers the big four's profits by about 1 per cent. So the change since the start of this year could cut annual profit by 2 per cent if it continues and banks do not try to offset it. The chief executive of industry fund-owned bank ME, Jamie McPhee, this week said higher funding costs and stiff competition in the home loan market would pressure its profit margins in the second half. Mr McPhee would not speculate on whether banks would respond by pushing up interest rates, but he said banks had responsibilities to both customers and shareholders. "In whatever environment we find ourselves operating in, we need to make sure we balance the needs of both those two," he said.

On March 20, Suncorp raised variable interest rates by between 0.5 and 0.12 percentage points, blaming the increase in bank funding costs as one reason for the change. Credit union CUA also raised various interest rates this month, pointing to pressure on its operating and funding costs. Despite the rising costs, Omkar Joshi, portfolio manager at Regal Funds Management, said he thought the fierce political scrutiny of banks would prevent them from raising home loan interest rates. "Ordinarily it would have happened, but not in this environment," Mr Joshi said. CLSA analyst Brian Johnson also told clients this month that lifting home loan rates would be "difficult" during the royal commission, suggesting profit margins from home lending would instead fall. Goldman Sachs analyst Andrew Lyons also highlighted the trend as a "headwind" for the major banks, but said they would be able to offset it by cutting interest rates on deposits.