the other thing to take into account is that in no era have banks lost so much money in bad loans.
It's like insurance policys, the more moeny lost the more the premiums go up as they still need to make a profit so on charge those costs back to the new customers.
Interest rates are the same, as banks lose money in paying out bad debts and money lost in collecting interest on that money they then on charge these new costs which adds to the cost of lending, as well as the credit default swap spreads widening due to higher risk adding to the cost.
there is a good chance bank interest rates will start to leap ahead of the RBA's cash rate in my opinion. look at the spreads now between RBA rate and Mortgage rate, its a lot wider than it was in 2007.
