National Australia Bank and Commonwealth Bank on Monday joined ANZ Bank and Westpac in raising their interest rates. That means the big four had decided to be independent of the Reserve Bank of Australia's overnight cash rate decisions.

After ANZ declared independence from RBA policy in setting interest rates and hiked interest rate by 6 basis points, Westpac followed suit and hiked interest rate by 10 basis points on Friday. On Monday, amid analysts forecast that NAB and Commonwealth would launch their rates review, NAB increased its variable mortgage rate by 9 basis points after Commonwealth hiked its rate by 10 basis points.

On the same day, ANZ Bank announced it would cut 1,000 middle management, back office and support role jobs prompting the Finance Sector Union to criticise the big four for being more interested in boosting their profits than the livelihood of bank workers.

The FSU warned of a job walk off at ANZ to protest the axing of the 1,000 jobs throughout 2012, although about half of the affected staff was informed of the bad news Monday.

The twin measures of cutting jobs and hiking rates are the banks' ways of improving the lenders' bottom line due to higher funding costs and volatile economic conditions. However, the FSU pointed out the big four - now called the Gang of Four - collectively earned $24 billion profits in 2011.

On Tuesday, RBA Assistant Governor Guy Debelle acknowledged that the lenders' funding cost are higher after covered bond issuances had markedly wider spreads and a sizeable hike in the cost of issuance after the market for bank funding reopened in January.

In June, senior unsecured debt from major banks cost 127 basis points more than the bank bill swap rate. That yield gap further widened to 223 basis points above swap rate in January, Mr Debelle said. For domestically issued covered bonds, the cost was 170 basis points over the bank swap rate in January while covered bonds issues overseas had a cost 210 basis points over the bank swap rate.

"Investors are demanding much higher compensation for bank credit risk now than they were in mid 2011.... This global repricing of bank debt has clearly affected the Australian banks' wholesale funding costs," The Australian quoted Mr Debelle.

He also cited as influences behind the higher bank costs the strong Australian currency and the portfolio shift by foreign asset managers.

However, according to ANZ senior interest rate strategist Shane Lee, funding costs have actually eased a bit since December 2011 which is a move in the right direction.

"If they keep moving in the right direction you may not see any more mortgage rate increases, unless the RBA does that.... But it would depend on funding costs starting to improve," Mr Lee said.

In defense of the big four, former Foreign Affairs Minister Alexander Downer said in an article at Adelaide Now that lashing out successful Australian banks is a nonsense and grossly irresponsible.

"The attack on the banks is based on the preposterous assumption that the Reserve Bank should determine what interest rates the banks should charge for home loans," Mr Downer wrote.

He added it is the professional bankers who are best qualified to decide the price at which banks should lend money, not Treasurer Wayne Swan who has urged borrowers to move their business if they are not satisfied with the interest rates of their banks.

Mr Swan said on Monday that since the RBA does not regulate interest rates by the lenders, what is needed is more competition which could come in the form of at least three large Japanese banks expressing interest in penetrating the Australian home loan market with offers of lower interest rates.

Former senior cabinet minister Peter Reith noted that it not just Australians who are bank bashers, but also American politicians who ramped up their bank bashing in 2007 just before the subprime crisis.

"They needed to disguise the fact that the subprime disaster really got underway when the U.S. Congress passed a law to encourage financing of home loans to low income people. It's great for people to have their own homes but, like a credit card, it's no help to let people rack up huge debts that they can't service," Mr Reith wrote in The Drum Opinion.

The former official said that Mr Wayne, instead of bashing the banks, should explain what is happening. He said that bank rates follow the law of supply and demand. "When the price goes up you either cut consumption or resign yourself to the higher price. It's pointless to blame the middleman," he pointed out.

At the same time, Mr Reith admonished the Opposition to stop suggesting that banks do not respond to the treasurer because of Mr Swan's lack of authority.

"The banks should not be responding to Swan any more than any other business should be told how to run their business by the government. Julia Gillard can barely run her office so she should not have a minister telling a bank what to charge for their services. Governments are hopeless at running businesses...," Mr Reith stressed.

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