ME will increase its variable home loans rates by 20 basis points, as it takes advantage of the rate increases announced by the big banks to improve its margin.From November 20, when the change takes effect, ME's variable "reference rate" will be 5.08 per cent - between 48 basis points and 60 bps below the variable rate of the big banks.ME chief executive Jamie McPhee said in a statement: "Up until the Financial System Inquiry recently addressed the unfair capital advantages of the larger banks, smaller banks like ME have been achieving below market shareholder returns in order to remain competitive with the majors."The FSI recommended that the big banks increase their mortgage risk weights for capital adequacy purposes - a recommendation that the Australian Prudential Regulation Authority has taken up.The rate increases the big banks have announced in recent weeks reflect the increased cost of the capital they have raised ahead of the APRA change, which takes effect in July next year.ME Bank is not the only small lender to take advantage of the situation. Comparison site Mozo reports that AMP Bank and Holiday Coast Credit Union have also increased variable rates in the past couple of weeks.ME also moved aggressively on investor rates. In September it raised the basic variable mortgage rate for new investor borrowers by 40 basis points and its package rate for investors by 36 basis points. Rates on established investor mortgages rose by 41 basis points.According to comparison site Mozo, these were among the biggest rate hikes for investors.ME also announced yesterday that it had increased savings account rates by 45 bps taking the bonus rate to 3.55 per cent (the base rate is two per cent).