The flap over whether, and why, banks might lift margins on home loans flared up again in Canberra yesterday - this time assisted by the measured observation of a Treasury official and the more colourful contribution of the shadow treasurer, Joe Hockey.Jim Murphy, executive director of the markets group at Treasury, had, on Wednesday evening, told a Senate estimates committee hearing that banks were  "testing the water" for an out-of-cycle rise."The Reserve Bank and Treasury do not believe the view being put by the banks that they still need to put up mortgage rates higher than the base rate to recover funds," Murphy said.Murphy said there was a "dispute as to the real facts of the situation" and Treasury was working with the banks to work out their funding costs.The minutes of the October 2010 meeting of the board of the Reserve Bank of Australia, published on Tuesday, made a similar point."Banks' funding costs had been relatively flat over recent months," they noted.Hockey, told ABC Radio's AM program yesterday that the Treasurer, Wayne Swan, should use his influence to prevent a new round of out-of-cycle or above-RBA rate rises. He cited the RBA minutes in his comments.He said the government had a "raft of levers" it could use to punish the banks and prevent them raising rates by more than the RBA cash rate. But the government had been "intimidated" by the banks, whereas the previous Coalition government had kept rates down.Hockey followed up this argument with an opinion article in The Australian today.CBA, Westpac and ANZ have all been flagging the need to boost mortgage rates to reflect higher funding costs. There is speculation they may put rates by up to 45 basis points if, as expected, the RBA raises the cash rate by 25 basis points at its next meeting, on Melbourne Cup Day.Hockey's comments reinforce the expectation that such a rise will damage the banking industry's reputation.ANZ and NAB report their full year profits next week, while Westpac reports the following week.Steven Münchenberg, CEO of the Australian Bankers Association, said Hockey's comparison between bank rate rises under the Coalition and Labor was "a false comparison" because the Labor government had had to contend with the global financial crisis.If the banks had been unable to increase rates by more than the official cash rate in recent years, he said, then the Australian banking system would have made negative profits last year and would probably still be under water.