The Banks’ Costs of Funds

The banks continue to use their increased cost of funds as an excuse for raising residential housing rates out of step with the RBA cash rate.  Rates for fixed-term asset finance, such as that for Medical Equipment, move all the time as each bank continually adjusts for balance, costs, and risk.  How to define their cost of funds remains a hot question.  It’s easy to see what they’re paying for term deposits, the highest of which are currently 6.67% for three years and 7.34% for five years.  But, what about the elusive international wholesale costs?

It appears that Westpac recently raised US$3 billion with the sale of bonds in the U.S.  The three-year rate is 125 points over bank bills, and the five-year rate is 160 points over banks bills.  Ninety-day bills are currently about 4.7%, so their cost is 5.95% for 3-year terms and 6.3% for 5-year terms.  The interest rates currently applicable to Medical Equipment Finance are in the mid-8s for 5-year terms, so it all adds up to about a 2% margin over their cost of the U.S. bonds.

There are, of course, many other factors that affect their average cost of funds, but this at least clears up one aspect.

Australian Election

This isn’t relevant to Medical Equipment Finance, but it certainly is to business and the economy.  I couldn’t agree more with Ross Gittins in his column in the Weekend Sydney Morning Herald when he says, “The most obvious disappointment about this campaign is both sides are pledging to do nothing serious in the coming three years about the greatest and most pressing threat to the economy:  climate change.”

The Cost of Healthcare

The price of Medical Imaging Equipment in the U.S. is at least 20% higher than everywhere else, and it wouldn’t surprise me that the same is true of all Medical Equipment.  While the Democrats in the White House and Congress have focused on providing for the many uninsured, the overall cost must surely increase, and small to medium-sized businesses will bear the bulk of the burden.  How can they now be expected to hire new workers and reduce the very high rate of unemployment?

Before the ‘reform’ bill passed, a recently published Commonwealth Fund study found that health spending was US$7,290 per person in the United States, almost double that of any other country in the survey.

Canadians spent $3,895, the Netherlands $3,837, Germans $3,588, Australians $3,357, and Britons spent $2,992 per capita on health in 2007. New Zealand spent the least at $2,454.

There must be a way to reduce the cost of healthcare in the U.S. without compromising the system of free enterprise through Federal regulations.  Maybe the growth of medical tourism is the answer.  I wonder how much costs would come down if U.S. insurance companies would cover medical procedures for Americans willing to travel, to Canada, for example.