Funding economics

Committed funding can be more valuable. It is not automatically cheaper.

HomeFund tests whether a bank could justify paying an informed customer for a harder contractual term, a distinct domestic retail funding channel or the displacement of another marginal funding source.

That defence is plausible. At-call balances can be withdrawn or repriced, while a genuinely hard-term liability gives the bank a known amount and maturity.

It is also easy to overstate.

An existing deposit may already be persistent, low cost, behaviourally modelled and structurally hedged. A higher-return HomeFund liability can therefore destroy value unless its incremental tenure or diversification benefit exceeds the lost deposit value and every product cost.

See the economic corridor

Follow the controlled benefit ledger

Public evidence supports bank-specific feasibility work only. It does not establish HomeFund economics, a business case or an approved customer return.

Start with the bank’s actual funding toolkit

HomeFund would compete with established funding sources, not fill an empty balance-sheet gap.

Major Australian banks fund residential lending through a portfolio of liabilities and capital rather than a one-to-one match between a customer investment and a particular mortgage.

At-call and savings deposits
Usually accessible to customers and repriced at the bank’s discretion, subject to product terms and competition.
They can be contractually short but behaviourally persistent.
Term deposits
Provide a defined term and rate through established deposit infrastructure.
They are the mandatory customer and commercial baseline for HomeFund.
Senior wholesale debt
Provides scalable term funding through domestic and offshore debt markets.
Its cost depends on currency, maturity, credit spread, hedging, execution and market conditions.
Covered bonds
Provide secured wholesale funding supported by a regulated cover pool.
They use collateral and encumbrance capacity that has an economic value.
Securitisation
Can provide funding against mortgage assets through established capital-market structures.
It introduces legal, reporting, servicing and transaction complexity and may transfer risks HomeFund currently intends the bank to retain.
Equity and regulatory capital
Absorb risk and support the bank’s balance sheet.
They are not interchangeable with customer funding, and mortgage income must also support their required return.
Central Treasury and hedging
Treasury manages the combined funding profile, liquidity, interest-rate risk, currency, maturity concentrations and internal transfer pricing.
HomeFund must complement or outperform this existing toolkit. It cannot rely on novelty or the idea that banks currently lack contractual term funding.

Public data is a screen, not the price

Aggregate funding costs challenge a standing high-return proposition.

The Reserve Bank of Australia’s published estimates using data to March 2026 placed major-bank funding costs at approximately:

Published cost screen — source HF-SRC-007
Funding measure	Estimated aggregate cost
Total funding	3.76%
Outstanding deposits	3.45%
At-call deposits	3.24%
Term deposits	4.15%
Outstanding debt	3.76%
Cash-rate target, for reference	4.10%

Source:HF-SRC-007

These estimates are useful screening evidence. They are not an individual bank’s marginal funding curve, new-issue price or internal funds-transfer price.

A standing return of approximately 5 per cent begins above each of those aggregate funding-cost estimates before HomeFund adds distribution, administration, hedging, liquidity, legal, protection, technology, conduct and operating costs.

That does not prove that every issue would be uneconomic. It does reject approximately 5 per cent as an always-on promise or permanent pricing rule.

Approximately 5 per cent remains only a controlled consumer-research cell.

The tenure hypothesis

Behavioural stability and contractual certainty are not the same.

Hard contractual term may add

A genuinely hard-term HomeFund liability could provide:

a known principal amount;
a known contractual maturity;
a legally defined earliest exit;
reduced withdrawal optionality;
reduced sensitivity to competitor repricing;
reduced runoff and replacement-funding uncertainty; and
greater confidence in a future maturity ladder.

That value can exist even where the money was already held by the bank.

Behavioural deposit value may already include

The strongest challenge

Banks do not treat all at-call deposits as though they will disappear immediately.

Persistent deposit cohorts can already provide:

low effective funding cost;
relationship stability;
favourable customer behaviour;
behavioural duration;
internal funds-transfer value;
structural or replicating hedge value;
liquidity value; and
cross-product economics.

HomeFund may therefore pay a large premium to replace a liability whose useful duration has already been recognised.

The permitted defence

Count only the incremental certainty that remains after preserving the full value of the displaced liability.

Incremental contractual-tenure value = value of HomeFund’s enforceable cash-flow certainty − full economic value already attributed to the displaced liability − value already recognised through internal funds-transfer pricing − value already captured through structural or replicating hedging − new maturity-concentration, hedge and liquidity costs − model-risk and uncertainty buffer

The difference between legal maturity and behavioural duration cannot be converted mechanically into a pricing premium.

It requires bank-specific evidence.

Where the tenure defence is strongest

Potentially supportable

Contractual conversion may be productive where:

the displaced balance is genuinely rate sensitive or operationally liquid;
its behavioural stability is uncertain or expensive to hedge;
the HomeFund term is hard in law and practice;
there is no standing exit at principal;
the bank has a defined funding need in the same maturity bucket;
the conversion causally reduces expected replacement funding;
the tenure value is not already included in internal pricing or hedging; and
the validated uplift exceeds the customer premium and every incremental cost.

Value not established

The defence fails where:

the displaced deposit is already persistent, low beta and relationship anchored;
its behavioural duration is already captured in internal pricing and hedging;
the customer can obtain early redemption at or near principal;
the product creates a concentrated maturity cliff;
the bank cannot show any avoided replacement funding;
operating and conduct costs absorb the benefit;
the customer return premium exceeds the incremental value; or
a remote stress benefit is paid for continuously in normal conditions.

A contractual product can replace behavioural uncertainty with maturity, liquidity, conduct and optionality risks rather than eliminate uncertainty.

Gross sales are not funding value

Every invested dollar must be assigned to one mutually exclusive source.

Source-attribution entry point

External new money
Cash enters from another institution or from a source not otherwise expected to remain with the issuing bank.
Potential value
It may fund planned assets, displace another marginal funding source or broaden the funding base.
Required proof
Identify the funding action that was genuinely avoided.
Identifiable wholesale-funding substitution
HomeFund replaces a planned funding requirement of comparable currency, effective tenor, optionality and timing.
Potential value
It may avoid senior unsecured issuance, offshore execution or cross-currency basis cost.
Required proof
Use a Treasury-approved matched issuance curve and show actual substitution.
Productive internal term conversion
An existing internal balance becomes a materially more certain liability, and the independently measured tenure uplift exceeds the higher return and every additional cost.
Potential value
It can improve contractual certainty even though the cash was already on the balance sheet.
Required proof
Reconcile behavioural value, internal pricing, hedging, earliest exit and avoided replacement funding.
Destructive internal cannibalisation
A low-cost internal liability becomes a higher-cost HomeFund liability without enough incremental value to cover the premium.
Required treatment
Charge the full economic loss to HomeFund. Do not classify it as acquisition, growth or diversification.
Other investment or liability reallocation
The customer moves money from another bank investment, term deposit or product.
Required proof
Identify the actual liability, margin or relationship value displaced.

Productive conversion or destructive cannibalisation

Internal movement is neither automatically good nor automatically bad.

Productive conversion value = incremental contractual-tenure value + proven avoided replacement-funding value + independently validated stress-option value − higher customer return − incremental product costs − loss of the original liability’s economic value

identify displaced liability;
preserve its full economic value;
measure incremental tenure and avoided funding;
deduct return and all costs;
apply risk buffer and bank hurdle;
classify as productive conversion or destructive cannibalisation.

A positive result before the bank’s required return is not enough. The conversion must remain positive after the risk buffer and required bank benefit.

Source attribution is also not a one-time question.

The bank would need to observe:

where funds sat immediately before purchase;
whether internal accounts were later replenished from another bank;
whether apparently external money was temporary;
30-, 90-, 180- and 365-day behaviour;
maturity and rollover behaviour; and
a comparable customer control group.

A stable attribution method is required before management can describe balances as new money, productive conversion or wholesale substitution.

One controlled benefit ledger

Every economic benefit must appear once and every cost must be recognised.

Potential benefits

source-weighted value of the funding or liability genuinely displaced;
independently measured contractual-tenure uplift;
evidenced funding-source diversification;
bounded contingency or stress-option value;
preserved secured-funding capacity;
proven reduction in refinancing exposure; and
validated incremental relationship value.

Required deductions

customer return;
acquisition and distribution;
administration and servicing;
registry, ownership and payment operations;
hedging and basis cost;
protection, reserve, guarantee or collateral cost;
valuation, transfer and market-support cost;
legal, disclosure, regulatory, tax and accounting cost;
technology and operational cost;
complaints, hardship, scams, remediation and conduct cost;
prudential, capital and balance-sheet cost;
maturity concentration and stress cost;
model-risk and uncertainty buffer; and
the bank’s required return.

The economic corridor

Customer value and bank value are separate hurdles.

Maximum economically supportable customer return

Maximum customer return = source-weighted counterfactual funding value + incremental contractual-tenure value + independently quantified diversification or contingency value + validated incremental relationship value − all non-return HomeFund costs − risk and uncertainty buffer − required bank benefit

Minimum informed customer return

An informed customer’s hurdle reflects:

available deposit and investment alternatives;
contractual term;
early-access restrictions;
issuer exposure;
Financial Claims Scheme treatment or uncertainty;
resale-price risk;
fees and tax;
protection conditions;
complexity; and
confidence that the mortgage-purpose claim is meaningful.

The customer hurdle must be measured after comprehension. Interest based on assumed FCS coverage, unconditional protection, guaranteed access or a standing bank buyback is not informed demand.

Feasibility condition

The maximum return the bank can support must be at least as high as the minimum return an informed customer requires.

minimum informed customer return ≤ maximum economically supportable customer return

Potential corridor: The thresholds overlap.
No viable corridor: The thresholds do not overlap.

Where no corridor exists, HomeFund must be repriced, simplified, restructured or rejected.

Marketing cannot create a sustainable economic corridor.

Use the correct counterfactual

Mortgage yield is not the funding benchmark.

Mortgage interest is asset-side revenue. It must support:

funding;
expected credit losses;
capital;
liquidity;
hedging;
distribution and operations;
tax;
infrastructure; and
shareholder return.

HomeFund cannot treat the difference between a mortgage rate and the customer return as product margin.

The primary comparison is:

HomeFund’s all-in marginal cost versus the all-in economic value of the funding or liability it genuinely displaces for the same currency, effective tenor, optionality and balance-sheet purpose.

Wholesale substitution

For wholesale substitution, the comparator may be matched senior unsecured funding.

Matched currency, effective tenor, optionality and timing

Internal deposit conversion

For internal conversion, the comparator is the displaced deposit’s full economic value plus only the incremental tenure uplift.

Mortgage-covered note

For a covered note, collateral, encumbrance and the opportunity cost of existing covered-bond capacity must also be recognised.

Three validation cells, three economic tests

Cell A — Purpose-branded term deposit

Possible economic value

established issuance, account and servicing infrastructure;
potential contractual term;
potentially clear customer treatment; and
controlled mortgage-purpose attribution.

Economic challenge

It may be a higher-cost term deposit that attracts balances already held by the bank.

The relevant comparison includes:

the displaced at-call or term-deposit economics;
existing deposit acquisition and retention cost;
contractual maturity and early-withdrawal treatment;
any eligible-deposit and FCS implications; and
incremental purpose-reporting and assurance cost.

Kill comparator role

Cell A should stop the broader HomeFund investment case where it delivers equivalent informed customer and Treasury value more simply and cheaply.

Cell B — Senior unsecured retail note

Possible economic value

hard contractual maturity;
Australian-dollar retail holder-base diversification;
potential matched wholesale-funding substitution; and
investor transfer without automatic issuer redemption.

Economic challenge

It adds disclosure, registry, distribution, valuation, transfer, conduct and likely non-FCS issuer-exposure costs.

A market-price transfer mechanism may preserve the bank liability, but practical liquidity and market support can be expensive.

Not selected or approved

Cell C — Mortgage-covered retail note

Possible economic value

stronger mortgage linkage;
possible secured-funding diversification; and
a clearer collateral proposition for informed investors.

Economic challenge

It consumes collateral and encumbrance capacity and must compete with the bank’s existing covered-bond program.

The model must recognise:

cover-pool administration;
collateral substitution and monitoring;
over-collateralisation;
legal and assurance cost;
retail distribution and registry;
valuation and transfer; and
the opportunity cost of institutional covered-bond capacity.

The three cells must be compared using the same balance-sheet need, source mix, effective term, customer hurdle, risk buffer and required bank return.

Issue-specific pricing, not an always-on promise

Treasury must be able to decline issuance.

A future HomeFund issue would require:

a defined funding need and maturity bucket;
a source-of-funds forecast;
a matched internal counterfactual curve;
separately validated tenure uplift;
all non-return costs;
prudential, hedge and liquidity treatment;
stress and sensitivity testing;
informed customer evidence for the actual terms;
a required bank benefit; and
explicit Treasury authority not to issue.

Issue

Do not issue

The preferred Treasury-feasibility hypothesis is an issue-specific fixed rate with controlled volume and maturity.

Continuous availability is not required.

A floating or step-rate structure may alter hedge economics, but it can weaken predictability and increase comprehension risk. It remains a comparator rather than an approved design.

Prudential value must be earned by the actual terms

Product labels do not create stable-funding treatment.

Effective-maturity and liquidity constraints

A mortgage link or investment label does not produce unique Net Stable Funding Ratio value.

The effective maturity depends on the earliest legal and practical date at which funds can leave.

A stated long term may have little prudential or economic value where:

customers have an early right to withdraw;
penalties are not materially significant;
the bank routinely grants access;
repurchase is expected;
matched transfers are not available; or
reputational pressure makes intervention likely.

A hard-term instrument can also create a concentrated future outflow as it approaches maturity.

The bank would need to manage:

staggered issuance;
maturity-bucket limits;
refinancing lead time;
investor concentration;
downgrade and confidence scenarios;
purchase or redemption pressure; and
communications under stress.

No automatic LCR, NSFR, capital-relief, resolution or FCS benefit is approved.

Interest-rate and hedge economics

Contractual certainty can simplify one risk and create another.

A fixed customer return may support predictability but create:

fixed-to-floating swap cost;
basis risk;
hedge-accounting effects;
break or unwind cost;
early-exit mismatch;
reinvestment risk;
maturity concentration; and
economic-value volatility.

A floating return can reduce some fixed-rate mismatch but may:

weaken the predictable-income proposition;
transfer rate variability to customers;
resemble a deposit without the same protection;
create benchmark and basis risk; and
increase conduct complexity through caps, floors or spreads.

The bank may also already hedge non-maturity deposits over a multi-year profile.

Converting those balances can require hedge rebalancing, termination or reallocation.

The HomeFund case must use the net hedge effect. It cannot add contractual-tenure value while leaving the original deposit’s hedge value untouched.

Scenario testing

Viability must survive more than one favourable issuance window.

The controlled model should test at least:

Affected economic lines

Funding markets

wholesale spreads narrow or widen;
cross-currency basis changes;
term-deposit competition increases;
secured-funding capacity becomes more or less valuable.

Affected economic lines

Source mix

external new money is lower than forecast;
wholesale substitution does not occur;
productive conversion is small;
destructive cannibalisation dominates;
internal balances are replenished or withdrawn differently from expectations.

Affected economic lines

Customer economics

the minimum informed return is higher;
demand falls after full disclosure;
customers require earlier access;
transfer demand is greater than buyer demand;
customers expect bank support.

Affected economic lines

Product cost

issue scale is below the minimum viable balance;
registry and servicing costs are higher;
market-making and valuation costs increase;
complaints, scams or remediation costs rise;
covered-note collateral and assurance costs increase.

Affected economic lines

Balance-sheet risk

interest rates move by plus or minus 200 basis points;
deposit beta and decay differ from assumptions;
structural-hedge value changes;
maturities become concentrated;
ratings fall;
liquidity pressure occurs when market depth is weakest.

The economic case must identify which assumptions are most important and which failures automatically stop issuance.

What the bank must know before a business case

Public data cannot answer the marginal question.

The minimum internal evidence includes:

Bank-specific evidence required · Not available in public research

Funding need and curves

approved funding plan by currency and maturity;
marginal senior, deposit, covered-bond and securitisation curves;
execution and hedging costs;
stress capacity;
minimum viable issue size; and
proof of what HomeFund would displace.

Deposit economics

effective rate and beta;
behavioural duration and runoff;
relationship and transaction characteristics;
internal pricing credit;
structural-hedge value;
service cost; and
model confidence and validation history.

Source attribution

origin immediately before purchase;
linked internal transfer path;
external-new-money status;
replenishment and runoff;
control-group behaviour; and
stable attribution rules.

Tenure value

legal maturity and earliest exit;
practical exceptions;
avoided replacement-funding distribution;
maturity-concentration cost;
hedge-transition cost;
stress-option value; and
independent no-double-counting validation.

Product and operating cost

legal, disclosure and target-market governance;
registry, payment and tax reporting;
distribution and servicing;
technology, data and resilience;
valuation and market support;
complaints, hardship, scams and remediation; and
fixed and variable run cost.

Customer evidence

minimum informed return;
comprehension;
acceptance of term and market-price exit;
source of switched funds;
reasons for rejection; and
incremental relationship value net of displaced funding economics.

One reconciled model

Treasury
Finance
Risk
Product
Model Risk

A future business case requires Treasury, Finance, Risk, Product and Model Risk to reconcile one version of these inputs.

Funding-economic kill conditions