The Reserve Bank no longer has to decide between cutting interest rates by 0.25 or 0.5 percentage points this week. The real question is whether to go full bore and cut by 0.75 percentage points to unclog the financial system.

The money is on 0.5 - less panicky and it leaves room next month for the same again if things are still too tight. And they will be because the banks will pass on only half of this at best.

They're not being stingy. All right, they are, but it's not profiteering.

So the banks made a record profit last year, eh? Most companies did; remember we had an economic boom once.

If it's any consolation their profits will fall as lending slows, bad debts grow and costs rise which hanging on to some of the rate cut will only partly offset.

Mum's the word but they even have a case for increasing their rates because of last week's jump in their funding costs.

Anyway, considering the size of their assets, the banks aren't the profit machines you imagine.

If you had $80 billion in fixed assets then you'd expect $4 billion in profit, too. Speaking for myself, I'd insist on more.

Their return on equity shows the banks are in the middle bracket of profitability, ranging from the NAB's 14.5 to Westpac's 21.7 per cent. For sheer greed consider BHP Billiton's 40.1 per cent (oops, that's OK because we need the China boom) or Telstra's 30.7 per cent.

But if banks are greedy how about Woolies at 27.2 per cent - shouldn't it be slashing grocery prices?

For the banks to pass on the whole rate cut they'd have to stop lending because every new loan would cost them more than they could get back.

There goes the housing industry for starters. Worse, the erosion in their profits would eat into their capital and undermine the entire financial system.

And here's the irony: it would also hurt the wrong lenders.

The banks' competitors would quickly become insolvent if they managed to keep any customers, who would more likely flee to the banks for the cheaper rates.

There'd hardly be a better way to boost bank profits than that.