Opposition shadow treasurer Joe Hockey on Thursday demanded Treasurer Wayne Swan to compel Australian banks to follow the adjustments put forward by the Reserve Bank, but lenders are calling the Coalition's interest rate policy dangerous.

The Australian Bankers' Association (ABA) said that since the Global Financial Crisis (GFC) commenced in August 2007, Coalition economic spokespeople have consistently demanded that the banks not increase interest rates above the Reserve Bank's cash rate.

This policy was reiterated by the Shadow Treasurer this morning in a doorstop in Canberra. If this longstanding policy had been implemented, then the Australian banking system would have made negative profits last year and probably would still be under water.

In December 2009, the Reserve Bank Deputy Governor noted that: "We estimate that if banks had not adjusted their lending interest rates to reflect their higher cost of funds over the past couple of years, they would now be incurring losses..."

The economic and social implications of negative bank profits would be profound.

Credit would disappear and economic contraction would put large numbers of Australians out of work. Losses would also risk bank credit ratings being downgraded, seriously affecting banks' ability to raise funds internationally.

Steven Münchenberg, Chief Executive of ABA, said: "This is what has happened in the USA and the UK. These countries' economies demonstrate the impacts of banks making losses - unemployment in those countries remains stubbornly high at around 8 - 10%, compared to Australia's at around 5%."

"The ABA also believes that calls for additional obligations through a social compact are unwarranted. Banks already recognise their obligations to the community. Banks have cut or abolished unpopular fees, provided free and low cost accounts and adopted extended hardship principles to help any customer experiencing financial difficulties."

"Australian banks have made great efforts to improve customer satisfaction in recent years. And while surveys show bank customer satisfaction has improved markedly, individual banks and the wider industry continue to work to improve this performance."

"The ABA also rejects any suggestions that taxpayers have bailed out the Australian banking system. Due the GFC and actions by other overseas Governments, the Australian Government acted decisively including by introducing deposit and wholesale guarantees to protect the stability of the Australian banking system and the economy."

"Banks will pay taxpayers around $5.5 billion for the use of the wholesale guarantee and, last year, Australian banks paid $9 billion in taxes, in contrast to other countries where taxpayers had to bail out failing banks," he concluded.