Profits of the Big Four banks are in line with those of other major Australian companies, the Reserve Bank of Australia has told the Senate banking competition inquiry. The submission, released yesterday, suggests the debate over bank profits is over-heated. The RBA's comments on returns represent its strongest intervention to date in the debate over bank profits. They may weaken the political momentum for action to stem bank profit increases. RBA governor Glenn Stevens told last Friday's House of Representatives hearing that a chart of Australian corporate profits overall would look like a chart of bank profits. Yesterday's submission delivered the chart. It shows the Big Four's return on equity has been below that of non-bank industrials in the ASX Top 20 since 2004. "The major banks' return on assets has averaged around 0.9 per cent and the post-tax return on equity has averaged about 15 per cent since 1992," the RBA submission says. "These returns are similar to those of other major companies in Australia, as well as those of banks in other countries prior to the global financial crisis." The submission points out that a reduction in bad and doubtful debts has been behind the recent round of reported profit increases. "The profit growth of Australian banks was adversely affected by sizeable increases in bad and doubtful debt charges in 2008 and 2009, although these rises in debt expenses were well below those experienced in many other countries," the submission says. "In 2010, bad and doubtful debt charges of Australian banks have declined, leading to a commensurate gain in profits." The RBA submission gives less support to banks' claims that their margins have come under pressure in recent months. The RBA agrees that banks' funding costs have risen relative to the cash rate, chiefly because of higher prices paid to attract deposits. But it also says that most of the increase in the major banks' funding costs came in 2008 and early 2009. Since then, it says, "the major banks' overall funding costs are estimated to have moved broadly in line with the cash rate". The higher cost of long-term funding has been offset by a fall in the relative costs of short-term wholesale and fixed-rate funding. "Over the past few years, margins have fluctuated within a relatively narrow range between 2.25 and 2.5 per cent," the submission says, confirming previous comments.