SHAREHOLDERS will bear the brunt of the banking watchdog's decision to take two of Australia's big four banks to court over rate rigging claims.
Banking regulation expert Dr Pat McConnell says the high cost of "protracted litigation" will come out of the pockets of mum and dad investors instead of ANZ and Westpac Banking Corp.
The Australian Securities and Investments Commission has launched legal proceedings in the Federal Court against the two share market heavyweights, accusing them of unconscionable conduct for allegedly influencing a key market interest rate.
Westpac faces accusations of manipulating the bank bill swap reference rate - also known as the BBSW - 16 times between April 2010 and June 2012.
ANZ is accused of doing the same thing 44 times.
Dr McConnell said ASIC could have simply fined the banks, but it decided to take them to court instead.
If the banks lose, they could be penalised $1 million for each transgression.
This would leave Westpac shareholders paying $16 million, plus court costs, from their dividends, while ANZ stock owners would lose $44 million for fines plus costs.
Dr McConnell, a Macquarie University Applied Finance Centre academic, would rather ASIC used its powers to fine the banks directly.
"We're really talking about many more years of litigation," he said, adding that "most of the people involved" would have moved on by the time the case was decided.
"The banks are not paying - it comes out of the shareholders' pockets."
Curtin University finance expert Dr Lee Smales said more than the banks' reputations was at risk.
"Banks are often not perceived well by the public, and this will not help their case," he said.
"It will likely result in an increase in the cost of funding and a fall in profits, and it would not be helpful for the stock price."
ASIC confirmed it was investigating other banks.