National Australia Bank Ltd (NAB) chief executive Cameron Clyne says the impact of the global financial crisis may have bottomed in the US and UK, but he cannot be sure.

Mr Clyne said many people were optimistic that the worst of the crisis may be over, and this had been reflected in recent rallies in share markets around the world.

“I think, unfortunately we have had too many false dawns for us to declare it,” he said during a speech on Wednesday.

“You’d have to say, though, in certain economies like the UK and the US, they are 18 months into this cycle, so you’ve got to believe they’re closer to the bottom than they were.

“I think the real question for us now, is whilst you might have a few small drops down, we’ve got to be relatively close to the bottom.

Mr Clyne said policy makers now had to consider how long the economy might remain there.

“Is this going to revert back towards to end of 2009? Or are we in a fundamental change in cycle? … We might be in this three to five years,” he said.

“The simple answer to that is that I don’t know.”

Asked if it was time for the federal government to wind bank its guarantee on bank deposits and wholesale funding, which had helped support Australian banking system in the current difficult environment, Mr Clyne said: “No, it’s not”.

“I think we need stability … people want stability.”

Mr Clyne said it was essential that there be a vibrant re-emergence of banking in Australia from the global economic crisis in the long term.

In terms of exposure, one could not just have four banks operating in the Australian economy.

The responsibility for the banking industry over time, as the situation and funding stabilised, was to have a vibrant second-tier regional banking structure, non-bank financial institutions and foreign bank participation.

Mr Clyne also said he did not believe there was a need to set up a “toxic bank” in Australia, in which bad assets and loans could be contained.

“I don’t believe there is a need for a toxic bank here because the banks’ balance sheets are not weighed down by toxic assets,” he said.

Mr Clyne said bank funding costs may continue to increase for the foreseeable futures.

He also indicated there was no guarantee NAB would pass on in full any interest rate cut by the Reserve Bank of Australia (RBA) next month.

He said any reduction in NAB’s mortgage rates will have to take into account its funding costs in the wholesale market.

“Debt from wholesale investors, both in Australia and overseas, is approximately half the funding cost of any loan,” he said.

“Our funding costs have gone up and may continue to increase for the foreseeable future, certainly through 2009.

“If we take responsible steps to address this and do not pass on the full amount of any future RBA cut, I expect to cop criticism for that.

“What that tells me is we need to communicate better and be accountable for making the right decisions.”

Mr Clyne said that when the RBA meets again in coming weeks, NAB’s response to any move in the cash rate would take into account the full reality of NAB’s funding costs.

The RBA board next meets on April 7 and is widely expected to lower the cash interest rate by at least 25 basis points to three per cent, from 3.25 per cent.

NAB shares were 55 cents higher at $20.37 on Wednesday.

AAP