Parliament has issued a stern warning to the banking sector, saying it is concerned about the failure to drop lending rates while banks continue to make healthy profits.
The Finance and Expenditure Committee has released an openly critical report ahead of Thursday's Official Cash Rate review.
It says despite several cuts to the cash rate, mortgage rates have not been reduced and in some cases they have gone up.
The committee notes the banks' argument that overseas lending rates have more effect than the Official Cash Rate.
However MPs say the rate still has a significant impact on floating mortgage rates and cuts should be passed on to customers.
Finance and Expenditure committee chair Craig Foss told Morning Report the margin between the Official Cash Rate and floating rates seems to be very wide is not as tight as the rest of the economy is.
MPs could go further
The Labour Party says failure to adequately heed the warning may provoke legislative intervention.
Labour MP David Cunliffe, who is a member of the committee, told Morning Report banks need to be good corporate citizens and pass on rate cuts.
He says he is sure banks do not want to push Parliament or the Government to ask the Reserve Bank to be more intrusive.
Green Party co-leader Russel Norman says the committee is running out of patience with the banks, which he says should be sharing the pain of businesses, homeowners and people who are losing their jobs during the recession.
Banks respond
ANZ-National says the report is surprising and gives a misleading impression overall.
Chief executive Jenny Fagg told Morning Report the bank's profits were down by about 30% in the six months to March.
Kiwibank says it should not be criticised, since its floating mortgage rate is the lowest available.
BNZ and Westpac have not commented.
There's disagreement among money experts over whether banks are unfairly profiting.
Asset manager Brian Gaynor says banks are not charging excessive amounts for mortgages and they do respond to competitive pressure.
However Gray Eatwell from the Bank Customers' Action Collective says banks are making profits unfairly.
