There could be more pain on the way for homeowners after the government formally backed a recommendation by the Financial System Inquiry to bolster Australian banks' balance sheets.
Australian Bankers' Association chief executive Steven Munchenberg said customers will pay as banks continue to raise capital to meet new requirements to protect them against future financial shocks.
Commonwealth Bank, ANZ and NAB have yet to follow last week's move by Westpac to hike its variable mortgage rates by 0.20 percentage points after its latest capital raising, but Mr Munchenberg said there was a cost to making the banks secure.
"The next time Australia is hit with some sort of crisis ... if we have got very strong banks, then we are all going to benefit from that in terms of keeping our jobs, keeping our businesses going and keeping our system strong," Mr Munchenberg told Sky Business on Tuesday.
"There is a cost to that. Some of that is going to be borne by shareholders, including our own retirement funds and superannuation, and some of it is going to be borne by customers."
So far, the big four banks have raised about $20 billion during 2015 in response to calls for them to strengthen their balance sheets.
Treasurer Scott Morrison last week lambasted Westpac for the size of its home loan rate increase to cover the cost of its $3.5 billion capital raising, saying it was double what was reasonable.
However Mr Munchenberg said that was based on flawed figures from the David Murray-led FSI.
Australia's regulatory framework needs to be stronger than those of comparable economies, according to the government's response to the FSI, due to the country's position as a net importer of capital.
It is also important because the big four banks are exposed to the vagaries of the property market, with up to 70 per cent of their domestic lending tied up as mortgages.
But Mr Morrison noted that some smaller lenders had reduced mortgage rates and said the big banks would have to justify their rates and the reasons behind them.
"A bank's decision will always be a commercial decision and it's always up to the bank to explain their decisions to their own customers," Mr Morrison said on Tuesday.
"There are pressures on banks but there are pressures on all businesses. Small businesses aren't always in a position to pass on the costs that they are having to bear to their customers."
Mr Turnbull accepted that banks were subject to a range of pressures when they set rates, but said his government was entitled to speak out.
"We'll express some views from time to time about banks' movements on interest rates but it is ultimately a matter for them and, of course, for the market," he said.
Ratings agency Moody's said the government's push to have the banks boost their capital reserves would be credit-positive for the sector and promote the resilience of the banking system.
However banking shares fell by between 0.6 of a per cent and 1.6 per cent as investors expressed disappointment at the likelihood of the big four having to raise more capital.
