Reserve Bank of Australia governor Philip Lowe says the banks were right not to pass on interest rate cuts.

Dr Lowe brought a set of graphs and tables to a House of Representatives economic committee meeting this week, explaining that he believed the banks were unable to pass on recent falls in the RBA’s official rate.

“I think the broad picture is, since the crisis, what has happened is that the whole structure of interest rates relative to the cash rate has risen,” Dr Lowe said

He said MPs could ask bank chief executives – when they front the same committee next month - why they were maintaining high levels of returns on equity, by global standards.

He also said that increased competition could force banks to pass on more of the increase in their funding costs to shareholders.

“My assessment is that the borrowers have largely borne the cost of that, not the shareholders. It's an interesting question about who ultimately should bear the cost,” Dr Lowe said.

Dr Lowe said time and increased competition would bring bank profits roughly in line with the lower returns seen in other investment classes.

“I would expect that, over time, the return on equity in the Australian banking system would decline, because the rate of return on every other asset has declined,” he said.

“It has happened internationally. It has happened on a lot of Australian assets.

“If the rate of return on bank equity is out of alignment with the rate of return on other, similar assets with the same risk, then competition should gradually push that down through time.”

But Dr Lowe did not hold back from slamming other poor behaviour by banks.

“There have been too many examples of poor outcomes, particularly in the wealth management and insurance industries. That is disappointing to us all,” he said.

“What I would like to see is, really, banking return to be seen as a strong service profession. I do not know how far away from that we are. Banking, historically, has been a profession – a profession of stewardship, custodians, service, advisory, counsellor. It is not a marketing or product-distribution business; banking is a profession.”