In March 2020, the Reserve Bank of Australia (RBA) created the $200 billion Term Funding Facility (TFF), essentially a slush fund for banks that locked-in three-years' worth of funding at rates well below what was available on global wholesale markets. Given the uncertain times, one could mount an argument for its creation – COVID-19 had just started to be taken seriously and the RBA was concerned about Armageddon. The TFF would provide cheap liquidity to the financial sector, which would then pass on the lower rates to households and businesses, stimulating activity.
But did it work? A new review from RBA staffers found “no statistically significant evidence that the TFF increased credit supply to businesses”. In other words, all of the additional funding from the TFF went into housing. Any bank that increased its lending to business using the TFF allowance “likely… did so by winning customers from other banks”.
The RBA engaged in a lot of unconventional activity in 2020-21. I’ve seen plenty of costs (e.g. inflation, worsening housing affordability), but where’s the RBA study showing the supposed benefits? Perhaps there were none, so kudos to the RBA for allowing this to be published, because it’s not a good look!