Freedom to set rates critical, says ABA

If the banks had given in to political pressure in 2008 and 2009, and followed official cash rate movements, they would have made losses in those years, the Australian Bankers Association said yesterday.

ABA chief executive Steven Munchenberg said: "Had banks followed every move of the cash rate, by the end of 2009 our banks would have been making losses.

"It was the freedom of the banks to move differently to the RBA, despite strong political pressure, that kept our banking system safe."

Munchenberg said the reliance on funding from international investors was the biggest risk the industry faced.

"Today we are not seeing the same degree of monetary easing as we saw in 2008 and 2009. Rigidly following the RBA today is not going to cause our banks to make losses.

"But that does not mean that the political pressure being brought to bear on the industry is without its risks."