Gail Kelly, managing director of Westpac Banking Corp, took a stab at predicting the long-term funding margin that her bank, and other banks, will have to pay for liabilities as financial markets begin to look beyond the credit shock and recession.Speaking at a Trans-Tasman Business Circle lunch in Sydney yesterday, Kelly noted that, on the wholesale funding side, the cost of funding has risen from 15 basis points over the benchmark rate before the financial crisis to an average now of 110 basis points over benchmark. That does not include the cost of the government guarantee the bank pays on most new wholesale (and also some retail) liabilities. Kelly said there will be no return to the pre-crisis cost of funding levels and that the spread will be 50 to 70 basis points in more normal environments. This is a message that other bankers have been repeating for some time, but when taken with Kelly's call on the bottoming of the interest rate cycle there is no doubt Westpac customers will be facing higher rates. In her speech, and also in a media doorstop afterwards, Kelly emphasised that there are still signs of distress among the bank's customers. "We can see with our commercial and corporate customers, financial distress and operating distress still making its way through the businesses of our customers," Kelly said.In line with the shifting views of many commentators she said it appeared the economic downturn in Australia was likely to be less severe and less protracted than predicted by the bank in February and in March.