We see, then, that a combination of structural factors, regulatory changes and increased competition has been working to narrow average margins on the liabilities side for quite some time.
A similar thing happened on the lending side: after the initial reconfiguration of interest rates that occurred in the early 1990s, competition over the subsequent decade put substantial downward pressure on most lending rates relative to wholesale funding costs. The result of all this is that the major banks’ net interest margins in the period since deregulation have been trending downwards (Graph 3).