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Following the collapse of Lehman Brothers in September 2008,banks in Australia did not lower the interest they charge for home loans to the same extent that the Reserve Bank of Australia lowered its cash rate target

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Following the collapse of Lehman Brothers in September 2008,banks in Australia did not lower the interest they charge for home loans to the same extent that the Reserve Bank of Australia lowered its cash rate target. They argued that their cost of capital - that is, what they had to pay to borrow money on the world's financial markets - had increased. Use the loanable funds model to explain why banks may have been justified in doing this.