Treasurer Wayne Swan has lashed out at the Commonwealth Bank of Australia following its announcement that its key lending rates were to increase by almost double the level of the cash rate increase. On Tuesday the Reserve Bank of Australia announced that the case rate would be increased by 25 basis points to 4.75 percent, and since then the CBA has announced that its key lending rates would increase by almost double that level.

The CBA lending rates for variable rate mortgages are being increased by 45 basis points, and this has sparked an angry reaction from Treasurer Wayne Swan. He accused the CBA of being involved in a 'cynical cash grab' and has now said that he is putting together a package of reforms that will see competition within the banking sector improve. The details of the reform package, he said, would be provided next month.

The banking industry body, the Australian Bankers' Association, has defended the decision of the CBA to increase its variable rate mortgage rates by 45 basis points, stating that funding costs had increased on both wholesale and deposit fronts for banks. Steven Munchenberg from the ABA said that it could not be assumed that banks were being unreasonable by increasing rates in this way just because had not bowed to 'bullying by government'.

However, he also said that the banking industry was prepared to consider reforms that were aimed at increasing competition within the sector as long as the reforms were deemed appropriate. In a recent interview he stated: “We would welcome appropriate moves to increase competition.”

Swan has not yet provided details of any of the proposed reforms that will be included in his package. However, Joe Hockey, the opposition Treasury spokesman, has said that Swan should release details of the reforms right away rather than waiting until next month, as the details needed to be released before other major banks started to increase their mortgages rates as well.

In the meantime the Finance Minister Penny Wong has warned that lenders need to be careful about how their customers will view the fact that they have increased or are considering increased their rates by a level that is higher than the increase in the official cash rate. She said that consumers had every right to be upset over the CBA rate increase, adding: “I would encourage other banks to consider how their customers perceive them moving from the official independent Reserve Bank increase.”

Swan said that some customers may be better off actually moving their mortgages if their providers increased rates by too much. He added that often losing customers on mass was the only language that the banking giants understood in circumstances such as these.

Referring to his package of reforms Swan also said that they would be “enduring and lasting and will deliver benefits to the Australian people”. He added: “We are going to empower our regulators with all of the powers that they need to make the system more competitive. And that's what we're doing.”