Mr Swan is planning a ban on exit fees and alleged anti-competitive "price signalling" among other measures to induce competition / File Source: News Limited

And some of the nation's foremost financial bureaucrats have called into question key assumptions underpinning the reforms, heaping pressure on the Treasurer to revisit the package.

As Mr Swan launched into a new war of words with prominent executives yesterday, Reserve Bank assistant governor Guy Debelle said that competitive pressures in banking "remain at a high level".

Treasury secretary Ken Henry played down the notion that diminished competition had been the catalyst for banks to lift mortgage rates beyond increases in the official cash rate.

"The re-pricing of home loans and other lending products could simply be a response to changes in funding costs and a re-assessment of risk," Dr Henry said.

Dr Debelle said the deposit market in particular had been "extremely competitive" and the interest rate paid out by banks for new deposits now almost matched the Reserve's base rate.

Before the global financial crisis, deposit rates lagged the base rate by 1.5 percentage points.

Commonwealth Bank chief Ralph Norris and his ANZ counterpart, Mike Smith, echoed the sentiment in Canberra as the first round of hearings for the Senate inquiry into banking competition drew to a close.

Mr Norris told senators that customers were "reaping the benefits of a price war for deposits", while Mr Smith dubbed the competition between the major banks as "brutal".

He criticised some of the regulatory initiatives unveiled by the Federal Government, saying "direct legislation on things like exit fees is a mistake".

The government reforms are structured around the concept that the big banks, which have 87 per cent of Australia's mortgage market, now have too much muscle and the marketplace is uncompetitive.

Mr Swan is planning a ban on exit fees - the charges levied against customers who pay out mortgages early - and alleged anti-competitive "price signalling" among other measures to induce competition.

Bendigo & Adelaide Bank chief Mike Hirst said the ban on so-called price signalling threatened to "reduce transparency for the investor market".

As the debate over competition continued unabated, Mr Swan returned fire at Aussie Home Loans executive John Symond, who has accused the Government of doing little to help smaller lenders.

Mr Symond "has joined up with the biggest bank in the country" by selling a 33 per cent stake to the CBA, Mr Swan said.