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IntroHello. I'm Bernard Hickey with the daily briefing from interest.co.nz...Today, we'll look at why banks are putting up fixed and variable mortgage rates when the Reserve Bank still has official rates on hold. Are the banks padding their profits or are they just passing on higher wholesale funding costs.Then we'll look at the latest comments from US Federal Reserve Chairman Ben Bernanke, who has warned some small banks there might fail.And finally a quick look at the latest trade figures showing our trade deficit looking slightly less ugly.Story 1, Firstly a look at why mortgage rates are rising.Some viewers may be wondering. How come our mortgage rates are rising when the Reserve Bank has got interest rates on hold. And how come our rates are rising when the economy is slowing.Aren't interest rates supposed to fall when the economy slows down?Now bank workers union Finsec suggested in a press release on Thursday that the banks are simply padding their profit margins and should explain why they're putting up rates.Well here's the chart that shows why the banks have been increasing their mortgage rates in the last 6 weeksThe grey line shows the London Interbank Offer Rate (LIBOR) for the New Zealand dollar swap rate for a one year term. This rate has jumped to around 9.25% in the last three weeks. This is one measure of the cost of wholesale funding for banks. Another is the one year swap rate for New Zealand, which has been relatively stable. Up until the end of last year these two rates moved in tandem, but in recent months since the global credit crunch a significant margin has opened up between the LIBOR rates that bank pay each other and the 1 year swaps rate paid on wholesale markets. That's because banks are increasingly nervous about lending to each other given the turmoil on markets and fears that big losses on sub-prime markets may force a bank or some banks to fail.You've got to remember the fixed mortgage rates offered by the banks are funded from these longer term wholesale markets rather than the shorter term rates based on the official cash rate (OCR), which hasn't moved since July last year when it was lifted 25 basis points to 8.25%.However, variable mortgage rates are also rising as the banks pass on the effects of an increase in the 90 day bill rate.Meanwhile the average amount paid to retail depositers by banks for one year term deposits has been relatively flat in recent months as deposits continue to pour into the banks and out of the struggling finance company sector. Essentially, strong demand from depositers has allowed the banks to keep those rates relatively lower than they otherwise would have been.Story 2Now for a look at the latest from the source of the global credit crunch -- America.Last night the US Federal Reserve Chairman Ben Bernanke told congress that some small American banks might fail because of the credit crunch.He said however he was comfortable that the big international banks were safe enough because they had raised 75 billion US dollars to bolster their balance sheets.But he said these banks will probably have to raise more.Stunning really. Can you imagine if our Reserve Bank governor came out and said some of our banks might fail and the big ones needed to raise cash.Bernanke said he expects to cut official rates again in America to avoid the credit crunch getting any worse.Meanwhile our rates are rising. But we're not alone on this. Real rates for consumers and businesses are also rising for the same reason ours are. Banks are incredibly nervous right now.Story 3And finally some good news on the trade balance, which improved to a deficit of 320 million dollars in the month of January from a deficit of 825 million dollars in January a year ago.Higher dairy prices and strong oil revenues from the Tui field boosted export receipts, while import growth was relatively subdued at 2.8%.This is remarkable with a currency at 80 cents. But remember it's a still a deficit and we'll no doubt have a deficit on our capital account, which means our current account deficit is still large enough to worry about having to borrow from foreigners to keep our current living standards. I'm Bernard Hickey from interest.co.nz with the Daily Briefing. Catch you on Thursday.