David Murray’s call for banks to set more capital has received yet another response, this time from Westpac chairman Lindsay Maxsted, who said “the need for strong banks must be balanced with the costs imposed on the economy”.

Maxsted released his first comments since the Financial Systems Inquiry was published on Sunday. He said Murray’s proposal did not pay enough attention to the question of how Australia funds itself, The Age reported.

"While we accept that a strong financial system is fundamental for an open economy like Australia, we believe the sector is already strong on many dimensions," he said at the bank's annual general meeting in Brisbane.

"Accordingly we need to work though the details with [the Australian Prudential Regulation Authority] on how best to assess capital, what the appropriate international benchmarks should be, and the form that capital should take."

Murray’s proposal during the Inquiry said banks should be forced to hold more capital to ensure they are more resilient to market shocks. However, industry watchers believe a change like this could significantly hit profits.

Meanwhile, APRA recently advised banks to put a 10% cap in the growth of investor lending per year or they would be forced to hold more capital, hitting profits.

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