Does foreign monetary policy drive Australian banks' wholesale funding costs?

Abstract

In this paper, we analyze whether Australian banks' wholesale funding (WF) costs are driven by foreign monetary policy. Using data for 2000–2015, we find that in aggregate, WF costs are not directly affected by the Reserve Bank of Australia's cash rate, except for issues in Australian dollars. The impact is indirect, through the yield of Australian government bonds. WF costs for issues in non-Australian currencies (except Japanese yen) depend on foreign monetary policy. The paper also shows that WF costs do not depend on the volatility index and exchange rates. Our results have implications for regulators and monetary-policy makers.