This paper provides a heuristic theory for modeling and analysis of vector quantization effects in 2-dimensional subband filter banks. This model is used as the basis for optimal filter bank design. The scalar non-linear gain-plus-additive noise quantization model can be used to represent each vector quantizer in 2-band subband codec. The validity and accuracy and of this analytic model is confirmed by comparing the calculated model quantization errors with actual simulation of the optimum LBG vector quantizer. Numerical design examples for the optimum separable paraunitary filter banks are suggested in this paper.