The maths doesn’t seem to add up. The combined pre-tax profit of the big four banks was $22.6 billion in 2008 and $33 billion last year – a 50 per cent increase. Yet their growth has been slow, and their own internal costs have been rising. And they have withheld passing on Reserve Bank cuts, claiming the cost of their funding has increased. What’s going on?

Well, during the financial crisis, and in late 2011, during the European debt crisis, the banks’ argument had merit.

In times of trouble, it often becomes more expensive to borrow.

But apart from these market ructions, what banks pay to borrow a large part of the money they then lend has fallen since the financial crisis, according to research by Professor Milind Sathye.

On the latest RBA numbers, deposits represent 54 per cent of total bank funding and wholesale funding makes up 37 per cent.

Banks borrow substantially from investors and other banks around the world to be able to provide loans. Some of the money they borrow is short-term – that is, it is due to be repaid normally within one to three months. Another portion is borrowed long-term – to be repaid usually in three to five years.

Looking at the long-term debt, the difference between the rate banks pay and the Australian government bond rate has fallen from 2.16 percentage points in June 2008 to 0.92 percentage points last month. In other words, the price for the banks more than halved.

The windfall is even more pronounced in the short-term markets, where the difference between the rate the banks pay and the benchmark rate has contracted from 0.43 per cent to 0.07 per cent points over the same period – a massive boost to bank profits.

For Australia’s big four – bearing in mind that the size of the Commonwealth Bank’s interest-earning loan assets alone is $645 billion – a decline in funding costs of a mere fraction of their funds is substantial, as are the profits to be had by holding back on successive RBA rate cuts.

”By delinking from RBA cash rate – as they have sought to do – banks are, in effect, saying that their rates are now linked to international borrowing costs,” Professor Sathye said.

”Why did they not bring down lending rates when international borrowing costs declined to less than 10 basis points?

”Banks would like consumers to gloss over the fact that it is the cost of equity, or the return to shareholders, which is the culprit.”

And even more remarkably, internal bank costs have gone up. Professor Sathye points out the ”cost-to-income ratio” from 2009 to 2012 – a measure of efficiency – of each of the big four rose.

The sharp fall in funding costs has again brought the spectre of competition back to the mortgage markets. Non-banker lenders, such as Resimac and the Macquarie Bank partner Yellow Brick Road, can access capital more cheaply.

Remember, it was Macquarie that funded Aussie Home Loans’ John Symond to undercut bank mortgage rates a decade ago. May it happen again because the big four share of the mortgage market has risen from 75 per cent to 90 per cent in the past four years.ears.