Banks need a kick up the bum, says Swan

Banks that fail to pass on the latest interest rate cut to borrowers need "a good kick up the bum", federal Treasurer Wayne Swan says.

The Commonwealth Bank has said it will only pass on a cut of 0.1 percentage points from the 0.25 point cut in the cash rate announced by the Reserve Bank on Tuesday, while the National Australia Bank says it will not pass on any of it.

Westpac and the ANZ have yet to make a decision.

"Certainly I'm pretty disappointed with their decision or the decisions that have been announced so far," Mr Swan said on Wednesday.

The banks would have to justify their commercial decisions in the court of public opinion, he told Fairfax Radio Network.

"You know what they're like, they do need a good kick up the bum occasionally," Mr Swan said.

The failure of the banks to pass on the latest rate cut had blunted the effectiveness of monetary policy, he said.

"It's not helpful when we're trying to get everyone in the community working together to deal with this global financial crisis."

Prime Minister Kevin Rudd had asked the two banks to reconsider their decisions, Mr Swan said.

But he said he would not contemplate a suggestion that the government could put pressure on banks by withdrawing its guarantee of their deposits.

"The beneficiary of the guarantee is not the banks, it's the Australian people," Mr Swan said.

"(Ending it) would in fact fundamentally rebound not just on the banks but on the Australian economy and that is absolutely something that we can't consider.

The guarantee had been essential to the stability of the Australian financial system, Mr Swan said.

Meanwhile, Federal Opposition Leader Malcolm Turnbull is demanding Australia's big four banks pass on the latest interest rate cut, saying they are doing "very, very well" at the moment.

"The least they can do is pass on these cuts in official rates," Mr Turnbull told ABC Radio.

"The banks are doing very, very well at the moment, particularly the big four, they are doing well competitively and in every other way."

The banks had received enormous support from the government, through the deposit guarantee and a wholesale term funding guarantee, he said.

Mr Turnbull warned that monetary policy would not work if the banks did not pass on rate cuts.

"The rate cuts are only effective in terms of stimulating the economy if they are passed on by banks," he said.

Government pressure has helped keep Australia's banks honest and home buyers in reasonable shape, federal Finance Minister Lindsay Tanner says.

"And we'll keep that pressure on," he told Sky News on Wednesday.

The government had kept up a constant "drum beat" of pressure on the banks to cut rates, Mr Tanner said.

"That pressure has had an effect, it's helped to keep the banks honest, to keep Australian homebuyers in reasonable shape."

ninemsn 8 Apr 2009