Banks should not use new requirements designed to make them more resilient to shocks as an excuse to hike interest rates for home loan customers, Treasurer Scott Morrison has warned.

The Australian Prudential Regulation Authority on Wednesday unveiled its long-awaited views on what banks must do to be considered "unquestionably strong," as recommended by the 2014 financial system inquiry.

It said the country's largest lenders would need to increase top tier capital - a cushion used by banks to absorb losses - by about 1 percentage point, to 10.5 per cent of their assets. Banks will need to meet the new target by 2020.

When the banking regulator last increased capital requirements in 2015, banks responded by raising interest rates on mortgages, in an attempt to offset some of the drag on their profitability.