Regulatory interventions may be politically popular but risk being counterproductive, bankers warned today.

The comments come as the Australian Government launched a banking reform called "Competitive and Sustainable Banking" which outlined some new initiatives, such as ban on mortgage exit fees and allow account switching as an easier process.

However, the Australian Bankers' Association (ABA) said exit fees reflect legitimate costs of mortgages and banning them will hurt smaller lenders.

"Similarly, Government intervention on ATM fees could hurt smaller banks and make it even more expensive to deliver ATM services to rural and regional communities," ABA chief executive Steven Muchenberg said.

According to him, "Account portability, if not properly considered and implemented, could also have major cost implications for smaller lenders, hurting their competitiveness."

Mr Muchenberg insisted Australia continues to benefit from the stable and competitive banking system, one of the key reasons why Australia weathered the global financial crisis.

"The evidence shows that Australian bank customers enjoy competitive financial markets and are able to access products and services at fair and competitive prices.

"For example, competition has led banks to reduce and abolish many unpopular fees as they compete to attract and retain customers."

"Australian bank customers, and our economy, have benefited from one of the safest banking systems in the world. There is an enormous benefit to all bank customers to know that their savings in the bank are safe and secure."

Mr Muchenberg said the industry has consistently argued that the best way to assist competition is to strengthen and diversify the funding of the Australian banking system.