South Australian Treasurer Tom Koutsantonis announced his own version of the federal bank levy in Thursday's budget, which is expected to raise $97 million in 2017-18.
The SA bank levy will have a similar model the federal levy, taxing 6 basis points of applicable bank liabilities.
The Australian Bankers' Association (ABA) was quick to denouce the SA bank levy as an "outrageous tax grab", labelling it as an example of "triple dipping" by the state government.
ABA chief executive Anna Bligh called on the other state premiers and first ministers to "rule out a similar tax".
But UBS bank analyst Jonathan Mott said "Pandora's Box is officially open", and it is possible other states will follow SA's lead and introduce further levies on the banks.
"Additionally, with the federal election 12-18 months away further increases in the federal bank levy cannot be ruled out, especially if the Australian budget remains under pressure," Mr Mott said.
He pointed out that a similar bank levy introduced in the UK was subsequently raised nine times.
The banks are likely to "push back hard" against the SA levy on a number of fronts, Mr Mott said.
Potential response could include a legal challenge, increases in mortgage rates and a threatened move overseas, he said.
"Although South Australia's levy of $97 million across the majors and Macquarie is insignificant (at around 20bps of pre-tax profit) it is an outcome many investors had feared," he said.
"We remain cautious on the outlook for the banks given the myriad of headwinds. We struggle to see what will drive bank share prices sustainably higher."