Australia's major banks will this week reveal the real value of their quest to recover their reputations, when they decide how far to raise lending rates.The Reserve Bank of Australia is widely expected to increase the cash rate by another 0.25 per cent today. Banks will then have the opportunity raise their own short-term lending rate, particularly mortgage rates.This is the banks' best opportunity to raise their own lending rates by more than the RBA increase.But, if they do so, they risk great damage to the industry's battered reputation with consumers.The CEO of the Australian Bankers Association, Steven Münchenberg, confirmed this last week, in a significant speech to the ACFS-Finsia conference. He said banks had slowly rebuilt their reputations after the branch closures and staff cutbacks of the late 1990s, only to have them "collapse virtually overnight" in 2008, when banks lifted rates by more than the RBA.Münchenberg later confirmed to Banking Day that research showed when banks push up rates by more than the RBA "community attitudes very quickly become negative". And, he said, the banks "are acutely aware of the reputational impact that out-of-cycle or over-RBA rises have."Most of the banks say they are making a resurrection of the industry's reputation a top priority. Westpac's head of retail and business banking, Rob Coombe, reportedly said last week that the "pendulum over-swung to the shareholder" in the 1990s and had created "a culture in Australia where bankbashing, particularly of the major four banks, has almost become a national sport." Meanwhile, Commonwealth Bank is running ads by French director Jean-Pierre Jeunet (of Amelie fame) focusing on its staff's contributions to charities. And the NAB has its "more give, less take" television spots on high rotation.Münchenberg's comments imply that these and other strategies to recover bank reputations will founder if the banks simultaneously push lending rates up too far. His core recommendation is that the industry change its behaviour and embrace its critics, rather than merely increase the volume of its pleading.Westpac and the CBA are the two banks that have most frequently argued the case for beyond-RBA rises and the ones most widely expected to raise them.Whoever raises first is expected to attract heavy criticism. When Westpac moved rates up 45 basis points, after the RBA's December 2009 25-point rise, Treasurer Wayne Swan called it "a slap in the face'' for consumers. Yesterday Swan told ABC Radio that "I don't think there is any justification whatsoever for any bank to move above the official cash rate." While banks carefully consider the sensitivity of lifting margins on home loans, they continue to lift them, with little controversy, for other loan categories.The Sydney Morning Herald today reported that BankWest (a subsidiary of CBA) wrote to business customers in recent weeks citing ''funding pressures'' as a reason to push through an out-of-cycle increase on business rates of 30 basis points.Banks can also be confident that any overall rise in margins (whatever category of borrower) will be accommodated by the RBA in setting monetary