The financial system inquiry called for Australian bank capital to be set in the top quartile of global banks. But as global banks continue to accumulate capital – as many countries catch up on implementing the Basel III capital standards and some, particularly in Europe, introduce stricter requirements – it remains uncertain how high capital in Australia will have to go, given a relative measure.

The latest Basel Committee for ­Banking Supervision report says the 75th percentile is currently 12.2 per cent, which was up from 11.7 per cent six months earlier. The final report of the inquiry said international studies had found the optimal level of bank capital was between 10 and 20 per cent – suggesting the global build-up has ­further to play out.

UBS banking analyst Jonathan Mott said the moving top quartile target made it difficult to quantify how much additional capital the banks would need to hold.

"By targeting a dynamic benchmark there is a risk the Australian banking system enters a global race to the top of capital levels," he said.

"The outcome of this may be higher capital requirements than the market expected, to achieve an unquestionably strong system."

Macquarie analyst Mike Wiblin also said having a moving capital target introduced uncertainties. "While APRA will need to define what top quartile looks like on a rolling basis, the issue for the sector is that it has now been pulled in to the capital arms race that is going on around the globe, which means it's unclear when the capital build ends."

Bendigo and Adelaide Bank chief executive Mike Hurst said on Sunday that reference capital levels to other jurisdictions could lead to capital levels escalating. "I can understand the need to have a highly capitalised industry, but if every country used that specific approach then it would be a continually escalating amount of capital," he said.

Mr Murray told Fairfax Media there was some merit in what these men were talking about, suggesting too much focus on safety could lead to some ­draconian outcomes on a cost-­benefit analysis.

But he said such concerns did not outweigh the need to protect the ­Australian financial system, given its reliance on offshore funding.

Because Australia's big banks ­competed against some global, ­systemically important banks for ­capital, they had to be strong enough to get counted when it was tough to raise money, Mr Murray said.

The alternative approach on measuring capital – deciding what absolute level was right for Australia – would arrive at a similar position, given foreign capital dependency, he suggested. "Maybe in time somebody will do an exhaustive study on what the absolute level should be. This was not possible in our time frames, but that would be a good exercise," he said.

Despite concerns about the measurement and trajectory of the capital build, the banking sector had a strong day on Monday. ANZ, Commonwealth Bank and Westpac all finished up 1 per cent, while NAB climbed 1.7 per cent.

Fund ­manager Geoff Wilson said the performance reflected the removal of uncertainty overhanging the sector ahead of the report's release and the capital shortfall being lower than the market was expecting.