Battle for deposits key for bank costs: RBA The Reserve Bank has played down the significance of a sharp drop in wholesale funding costs for lending rates, saying competition for deposits will remain the key influence on banks" costs. In a finding that is likely to be welcomed by the big banks, RBA researchers said lending rates have tended to move in line with costs during 2012. Over the past year the gap between the cash rate and mortgages has continued to widen, sparking accusations the banks were gouging their customers. But the Reserve said the main reason for this was the battle for banks to attract deposits. Over 2012, the cost of deposit funding for banks had fallen by only 90 basis points, compared with the 125 basis point fall in the cash rate, the Reserve said. It also said the cost of raising new wholesale debt had fallen to its lowest level since 2009 - but this was often still replacing cheaper debt that had been issued before the global financial crisis. ""Although the recent narrowing of spreads on long-term wholesale debt will eventually put downward pressure on funding costs, developments in deposit competition will have a larger impact on movements in funding costs,"" Reserve staff Benn Robertson and Anthony Rush wrote. The comments come as the industry debates whether the war for deposits has further to run. Regional lender Bank of Bendigo and Adelaide said last month that it expected deposit pricing to ease this year because banks were able to get more of their finding from wholesale funding markets. But the chief executive of the country's biggest credit union CUA, Chris Whitehead, said on Thursday that he saw no signs of the war for deposits was losing steam. New regulations had pushed banks to chase deposits more aggressively, he said. At the same time, many consumers were demanding a better return on their savings as they weighed up re-entering the stock market or investing in property. ""Deposits were at something of a high-tide mark in my opinion and I think we are going to see some outflow into other assets and that will put further pressure on deposits,"" he said. Mr Whitehead made the comments after CUA said its profits had risen 39 per cent to $36.1 million in the December half.