Treasurer Joe Hockey backs the latest David Murray report, which urges Australian banks to change the way they assess home loan risks, carry more cash to fund their loans, and compete in a level playing field by removing the big four’s advantages.

A news report by Sydney Morning Herald said Hockey claimed he is prepared to take on powerful interests in the financial services industry and receive a backlash if it would boost retirement incomes and toughen the competition among banks.

The banks should work with the government and regulators rather than launching a campaign against the recommendations, Hockey added.

"When David Murray was first appointed there was a criticism David Murray would be the voice of the big banks. Now he has made these recommendations. If APRA takes a similar view that is up to them, as they are an independent prudential regulator,” the Treasurer said.