As if being under the withering ethics spotlight at the royal commission wasn’t uncomfortable enough for the big four lenders, their margins are coming under intense pressure from soaring offshore borrowings costs, too.

In a warning not only to the banks tapping global wholesale funding markets, but also to many ASX-listed companies, the cost of borrowing US dollars climbed to levels not seen since the 2008 financial crisis.

Libor — the London interbank offered rate — reflects borrowing costs for the global pool of “eurodollars” tapped by non-US banks and companies from around the world, and it hit 2.24 per cent this week, up from just 0.25 per cent late in 2015 when the US Federal Reserve ended its quantitative easing program.

The point that should be of concern to all investors is that the eurodollar market — essentially the global “reserve currency” component of the US dollar — was the epicentre of the global financial crisis in 2008 when global interbank funding froze.

The Fed has since instituted US dollar “swap” facilities with other major central banks, including the Bank of Japan and the European Central Bank, to limit the possibilities of another freeze-up but notably the BRIC countries are not included.

And there is mounting evidence of a US dollar funding crunch, a lingering hangover from heavy borrowing prior to the global financial crisis.

China in particular has displayed evidence of an acute US dollar funding shortage since 2015, with the People’s Bank of China having to exchange $US1 trillion of its currency reserves to meet domestic China demand, so it bears watching for increasing signs of stress.

The rise in Libor has been in response to the Fed rate hikes, but Libor has risen more than the US Fed fund benchmark, indicating pressure in the offshore market and a reluctance for US banks to fill it by tapping cheaper US funding to ease the global pressure.

What this all means is that Fed rate hikes have amounted to a global company rate hike.

Credit Suisse strategist Damien Boey said his research had found a marginal US dollar supply surplus, “which supported world growth and commodity prices in 2017”, had disappeared this year. “This is even before we have considered the threat of protectionism,” he said.

If the trend continued, it was easy to see how an offshore US dollar shortage might emerge, “to the detriment of the Australian economy and markets”.

The banks were vulnerable to the funding squeeze because they have chosen to borrow long-term wholesale funding offshore. The offshore market better suits meeting the duration needs of the lenders.

“If, for regulatory purposes, banks are required to duration match their assets and liabilities, banks have an inherent need to lengthen the maturity of their liabilities, by taking on term funding,” Mr Boey said.

“But as term funding markets are not well developed in Australia, banks are forced to search for it abroad instead.”

During episodes of US dollar liquidity shortages, “we have seen credit conditions seize up globally”, causing Aussie banks to become much more selective in their lending practices.

“This is because there is a critical mass of non-US institutions in the world that requires US dollar funding,” he said. “When such funding dries up, these entities often face severe currency mismatches which can exacerbate illiquidity in markets and lead to defaults.”

He also puts China at the juncture of Australia’s fortunes, not only because of mined commodity demand, but also the tendency for Chinese property investors to be “pro-cyclical”.

He noted the banks were happy to lend to domestic borrowers trying to match Chinese buyers driving up east coast house prices. That had supported the construction and finance sectors.

“US dollar liquidity has been a major driver of the Australian equity market,” Mr Boey said.

“The US trade deficit is highly positively correlated with S&P-ASX 200 earnings. Correlation is not causation, but we can see linkages via Chinese demand for commodities and housing.”

His key concern was if a global US dollar shortage re-emerged, “the flow-on effects from China might weigh heavily on market performance”.