Westpac is warning thousands of dollars could be added to mortgage repayments nationwide if Reserve Bank proposals go ahead.
The central bank wants to force banks to hold more money so they can ride out future financial crises.
The Reserve Bank is trying to make the banking system safer, but that could end up hurting borrowers.
"Which is exactly what we should be doing - the question is how safe is safe and how much does that cost," economist Shamubeel Eaqub told Newshub.
The proposals would mean New Zealand's four largest banks; ASB, ANZ, BNZ and Westpac would have to hold more capital or cash reserves to protect themselves if a massive crisis hits - a one in 200 year event.
"In the last ten years we've seen the global financial crisis, and what we've seen is actually our regulations are not strong enough and maybe banks are a bit more risky than we thought," Eaqub said.
Westpac warns that it will have to pass on costs to those who borrow.
"I think they're going too far, I think they want to make the banking system really safe by making a lot of big costs on borrowers and probably cutting off funding from very risky businesses and poor folk in New Zealand," Eaqub said.
The banks say it would add several thousand dollars a year to the average mortgage in New Zealand, with Auckland hit the worst at six-thousand.
Former Prime Minister Bill English took a swipe at Australian owned banks at a conference in Sydney on Thursday.
He believes they're bluffing, saying - "don't believe what they say - watch what they do.''
The Government can't get involved as the Reserve Bank is independent.
"We are still in a consultation process and I just urge all sides of this to make sure we go through that in good faith and keep in mind the desire we all have for a safe and stable banking system," Finance Minister Grant Robertson said.
The proposals are still under consideration and are now being examined by independent experts.
A decision is expected by November.