Australia and New Zealand Banking Group Ltd (ASX:ANZ) has defended claims that it spent less on funding costs in 2010 than in 2009, and called an analysis by the Australian Institute "simplistic," The Australian Financial Review reported.

Responding to a query taken on notice from independent senator Nick Xenophon, the bank has acknowledged that the details of the institute's analysis were correct but maintained that the financial sector was continuing to experience greater funding pressures.

The bank said its fall in funding costs for 2010 were a result of several factors including the buy-out of ING Australia.

In mid-December, ANZ said it sees potential volatility in cost of funds due to uncertainties in the US and Europe.

The banks said it expects funding costs to climb for another 18 months.

Australian banks rely on offshore debt for a quarter of their funding needs and have been forced to raise mortgage rates to ward of margin erosion as they replace cheap debt raised before the global financial crisis leading to a political backlash.

"While some of the banking regulatory proposals may appear superficially attractive, we need to understand that a public policy debate that is driven by populism is likely to be harmful to the economy's long-term prospects and to Australia's national prosperity," ANZ chairman John Morschel said in a December statement to shareholders.

With Reuters