The funding advantage enjoyed by major banks since the global financial crisis continues, although small financial institutions have closed the gap a little over the past year.An ING Direct study of funding costs in the wholesale and retail markets shows wholesale market pricing differentials have come down over the past year.ING Direct's chief economic officer, Glenn Baker, said the differential between the margin over swap paid by major banks and non-majors for three-year notes has decreased  from 75 to 50 basis points over the past year.Speaking at the AB+F Mortgage Innovation conference in Sydney yesterday, Baker said pricing on issues of residential mortgage backed securities had decreased  by 25 basis points over the past year. Most RMBS' issuers are small financial institutions.Pricing in the at-call and term deposit markets has remained competitive, with small and large deposit-takers paying similar rates for deposits.Baker said: "Over the past year there has been some moderation in the pricing gap between the majors and the rest of the market."There has been a modest reduction in the cost of new funding. Overall, funding costs are still going up because cheap pre-GFC funding is rolling off. "The high-cost funding will start to roll off in 2012 and then we will start to see overall funding costs coming down."Baker said the improvement in relative funding costs was reflected in the growth in mortgage market share being enjoyed by small lenders over the past year.