Treasurer Wayne Swan is preparing to announce a package of banking reforms that is likely to include a number of the Coalition's ideas.

The Reserve Bank announced yesterday it would increase rates by 25 basis points, taking the official cash rate to 4.75 per cent.

The Commonwealth Bank was the first bank to react, raising interest rates by 45 basis points.

Mr Swan says the Government will announce a range of policy changes next month to boost competition in the banking sector which he says will put downward pressure on rates.

"We've been working very closely with our regulators, putting together further reform," he said.

"It will put pressure on the major banks to behave in a better way."

Mr Swan says the banks need to be reined in.

"There's a culture of arrogance among the banks," he said.

"The Commonwealth Bank doesn't want people to know that their net interest margins are back at pre-crisis levels and their bad debts are falling. There's simply no justification for this behaviour.

"This behaviour is arrogant in the extreme and what we will need, as we go forward, is further reforms to the system. But you just can't click your fingers."

'Hot air'

Mr Swan says the Government's proposed reforms go beyond the Opposition's nine-point plan to regulate the banks.

"The Government has already put in place a series of very important reforms, for example our reforms to unfair mortgage exit fees start on July 1," he said.

"I've always made it clear there would be further reforms because what you need here is very careful, methodical reform.

"There's no silver bullet here, there's no amount of hot air from Joe Hockey can solve the structural problems that we have in our banking sector, and they have to be addressed over time with reforms that Mr Hockey and his colleagues never, ever contemplated in the 12 years they were in office."

However, it is believed the Government's package will incorporate several of Mr Hockey's ideas.

The Greens Leader Bob Brown says there needs to be a review of how interest rates are set.

"The re-regulation of interest rates is going to now get a major boost in terms of public discussion," he said.

He says the Commonwealth Bank's decision to move beyond Tuesday's official interest rate rise reinforces the need for legislative action.

The Senate has established an inquiry to look at what can be done to boost banking competition.

Pressure building

But the Australian Bankers Association has justified the Commonwealth Bank's decision to lift its rates by almost double the official move.

Association chief executive Stephen Munchenberg says pressures have been building for the banks to lift rates.

"What the Commonwealth Bank is saying is that that marginal effect has built up 2 basis points or 0.2 per cent each month, and that's now built up over nearly a year since the banks last moved interest rates, so there's a cumulative effect there," he said.

CBA head of retail banking Ross McEwan said the lender's practices have enabled it to stay strong during times of economic volatility.

"We were one of the major banks that continued to fund throughout the global financial crisis when others couldn't," he said.

"It was the strength of the Commonwealth Bank that actually gave us the ability to keep getting that funding off-shore and to make sure it was priced well.

"If we hadn't held onto that financial strength position, unfortunately customers would be paying even more than today."