The pool of funds Australia's big four banks are increasingly accessing to source home loans has become more expensive.

In some cases, it is as expensive as it was during the height of the global financial crisis.

"We haven't seen these levels of short-term interest rates, the cost of funds for the banks, outside of a financial crisis before," Westpac's head of interest rate strategy David McColough said.

The big banks are reluctant to pass this cost on to borrowers because it would add to the growing social and political backlash stemming from the banking royal commission.

The problem for Australian banks is that it is a key source of funding, so they may be forced to cover the rising costs sooner rather than later.

"It is really important, because short-term debt is 20 per cent of total funding composition for the authorised deposit-taking institution [banking] sector and it matters," Mr McColough said.

"So five equal mortgages, of let's call it $100,000 each, well one of them has been funded this way, and if those funding costs increase, well then the cost of that mortgage is going to have to increase.

"That's why the markets are worried about this."

The Westpac strategist would not be drawn on how high interest rates could go in the short term.

"That's not the part of management that I'm in, so that's just something I can't answer right now," Mr McColough said.

Australians not saving as much anymore

The cost of funding for the big four banks has risen.

That is in large part because deposits — which the banks rely on heavily to fund home loans — are drying up.

A key part of the problem is that Australians are not saving as much anymore.

In fact savings rates are at roughly the same level as they were during the height of the financial crisis.

As Mr McColough explained, if deposits (which make up 60 per cent of bank funding) continue to fall as households dive into their savings to meet increased mortgage repayments, the banks will need to source more money from expensive short-term money markets.

This, in turn, will put further upwards pressure on interest rates.

"That is the negative feedback loop," he said.

"What the actual size of it and what the impact on the real economy is, and over what time frame, are the big uncertainties.

"Certainly you can't call this a positive."

'It's a perfect storm for them'

RN Breakfast put that idea to UBS Asset Management's head of fixed income, Anne Anderson.

She manages billions of dollars' worth of assets, so she is well placed to comment on the prospect of rising interest rates.

"My view is that you have this structural change, so the [cost of funding] has stepped up," Ms Anderson said.

"That's where I would change my view [on the likelihood of further bank funding pressure] if you saw it take another step up, which I'm not expecting."

She did, however, concede that it was a tough time to be a banker.

"It's a perfect storm for them because its happened at the same time that they've had the royal commission," Ms Anderson said.

"That put Aussie banks on the back foot."

Many of Australia's smaller and regional lenders have already passed on the higher cost of funding to borrowers, including the Bendigo and Adelaide Bank.

The bank's new managing director, Marnie Baker, told RN Breakfast in a statement that the bank held off raising rates as long as possible.

"This year, the market has seen a continual increase in short-term wholesale funding costs. It remains to be seen whether we are facing a structural resetting or a cyclical period. The changes are affecting the wider industry and until recently, we've absorbed the cost impact."

Concerns over rising long-term US interest rates

Analysts believe a key reason to expect the big four will pass the costs on is pressure from shareholders.

"They are feeling the pressure from equity holders to get more returns," Queensland Investment Corporation director of research Katrina King said.

Ms Anderson agreed, with the rising cost of funding already affecting how much analysts thought the banks were worth.

"For equity investors this is more of a concern around bank profitability," she said.

"This is not new but, combined with the increased capital requirements that APRA has been introducing over time, obviously higher levels of regulation, and slowing credit growth, at the same time that the price of debt is increasing for the banks, that is affecting equity valuations."

But it is not just the short-term money markets squeezing the banks.

The cost of borrowing from longer-term international markets is also rising.

Roughly 20 per cent of bank funding is sourced from these markets.

There are concerns rising long-term interest rates in the US will put upward pressure on rates here in Australia.

More immediately though, Ms King said there were signs the Bank of Japan may be considering ending a decades-long policy of holding interest rates at very low levels, and in some cases employing negative interest rates.

That, she warned, "will certainly" put upward pressure on interest rates here in Australia.

"It will become more expensive borrowing money."

However, Ms King said she expected the banks would target investor loans, rather than owner-occupier loans, when it came to passing on the cost of funding.