Time for banks to stand up

The chiefs of the country's big banks have found themselves in an uncomfortable position over the past couple of months. It can't be easy sitting on the fence for that amount of time.

Nor, one imagines, can they keep it up for much longer. They need to make a call about how they are going to set home loan interest rates, with the Reserve Bank of Australia widely expected to push cash rates higher in the market this morning.

Westpac chief David Morgan said last week that the bank would act after considering the interests of all stakeholders.

At Westpac all stakeholders are equal but some are more equal than others. Home loan borrowers have had their borrowing costs subsidised over the past few months by business customers, who have felt the full impact of the bank's higher cost of funds.

And Westpac shareholders are still waiting to find out how much more the bank will allow higher funding costs to erode margins before it abandons the convention of only changing variable mortgage rates when the Reserve Bank changes the cash rate.

The situation is no better at any of the other big banks. New ANZ boss Mike Smith might have thought he was being forthright when he said the market should determine interest rates.

But which market did he mean? Is it the competitive market in which he operates, where all big five banks offer the same standard variable home loan rate?

Or is it the global credit market, which has re-priced his bank's securities? Was the ambiguity intended?

The banks have already broken with the convention of matching RBA moves in other product areas. Some line of credit mortgages moved up by more than 25 basis points after the RBA's August move. And some credit card rates have risen very sharply.

There is a case for not passing on the full increase in their cost of funds. By holding back they are able to apply pressure on their competitors.

Whatever they do, they should stop being wimps and state a position. Otherwise they will forever have politicians lecturing them on how to price their products.