The head of the central bank say elevated bank profits are unpalatable but will help bolster the strength of the financial system at a time of turmoil.
Speaking at a parliamentary committee on Wednesday, Reserve Bank governor Philip Lowe said profitable banks were positive for the country.
"You want strong, resilient banks," he said.
"I know it's hard for people to accept when they're suffering from problems with their personal finances, but the country is better off from having strong, resilient, effective banks who can provide the financial services that we need."
Rising interest rates have been feeding into elevated bank profits, with Commonwealth Bank posting a nine per cent half-year cash profit in part thanks to growth in lending volumes and a recovery in margins.
The RBA governor acknowledged that rising interest rates boost bank profits in the short term, especially if banks are slow to bolster rates on savings accounts.
"But over time, higher interest rates lead to the economy slowing, which makes it more difficult for banks," he said.
"So there's kind of a 'better now, maybe not so good later on'."
The treasurer has asked the consumer watchdog to investigate how banks are setting interest rates for depositors and mortgage holders.
Australian Competition and Consumer Commission chair Gina Cass-Gottlieb said banks were typically passing on interest rate hikes to home loans in full but increases on deposit accounts were often smaller and less consistent.
"We will also examine the extent to which consumers can benefit from shopping around and switching, and what other barriers are stopping consumers from seeking a better return on their savings," Ms Cass-Gottlieb said.
The ACCC will consult with financial regulators, including the RBA, as part of the investigation, and report on its findings by December 1.
