19 March 2010 Editor "The Sydney Morning Herald"  Letters to the editor Delivery by email: letters@smh.com.au Dear Sir or Madam, Re: “Go on, it’s all right to bash banks” by Jessica Irving page 17 Encouraging the community to ‘bash banks’ is unacceptable, especially when the very sources that the columnist has referenced have actually backed banks’ explanations for increasing interest rates. The article perpetuates the myth that the Reserve Bank and the Treasury have criticised the banks. In fact, if you read the Reserve Bank Bulletin and the speech by Treasury Secretary, Dr. Ken Henry, it is clear they have both vindicated the explanations that the banks have provided to the community about their interest rate movements.  The Reserve Bank cash rate has not been an accurate indicator of banks’ funding costs and both sources acknowledge that interest rates are higher because banks have faced continuing pressure on their cost of funds. Additionally, it is also stated that banks’ overall margins have increased because banks have re-priced their lending based on risk and started increasing their capital ahead of expected tougher international requirements. Despite this, the overall net interest margin is still extremely low by historical standards.   Re-pricing loans based on risk, particularly for business lending, is appropriate given that it was irresponsible lending overseas that triggered the global financial crisis and is causing the social dislocation and economic hardship currently being experienced in some countries. Australia’s banks did and must continue to make responsible lending decisions, including decisions on the price of credit, so that our strong economic growth is underpinned by a solid banking sector. Yours sincerely, Steven Münchenberg Chief Executive Officer Australian Bankers’ Association