Mr Morrison said a royal commission into the banks would "potentially do harm to confidence about the sector".

The idea of a royal commission has been "under active discussion" at senior levels in Labor for some time and this week's events, which included a speech by Malcolm Turnbull in which he excoriated the banks for their culture of greed and warned they would lose their social contract if they did not clean up their act, has fast tracked events, a source said.

The source cautioned any inquiry would have to be a targeted such as the one into financial services, rather than banks as a whole, so as not to damage the sector.

All talk and no action

Mr Shorten mounted the case on Thursday for a royal commission, saying the government was wrong to have ruled it out and Prime Minister Malcolm Turnbull was all talk and no action.

Member for Griffith Terri Butler and Bill Shorten in Brisbane on Thursday. Mr Shorten mounted the case for a royal commission into banks. AAP

"I think Australians are sick of politicians who talk tough and do nothing. I think it's frankly quite contradictory. Mr Turnbull is there giving some sort of lecture to the banks, then he wants to propose corporate tax cuts," he said.

"It's time for Mr Turnbull to stop ruling out quickly the option of the royal commission and instead start listening to what every day Australians are saying and they don't like the bad behaviour of banks.


"If [it] was a building worker tradie, the government is over them like a rash examining their behaviour."

Global credit rating agencies are on alert about the rising cost of conduct breaches at Australia's banks.

David Rowe

Interest-rate manipulation, claims payments problems in life insurance and poor financial advice in wealth management businesses prompted Fitch Ratings to highlight the "increased regulatory scrutiny on conduct and culture" facing Australia's banks.

As Labor and the government butted heads, corporate regulator ASIC chairman Greg Medcraft, the banking regulator and Treasury officials agreed to meet leading company directors in a ceasefire of the "culture wars" to try and ease tensions.

Managing director of the Australian Institute of Company Directors John Brogden – who has been vocal of his criticism of ASIC becoming the culture police – said he had called the meeting with Australian Prudential Regulation Authority, Treasury and Mr Medcraft who had immediately accepted the invitation, in an effort to find common ground.

"Current debate isn't constructive and the best way to progress is for stakeholders to sit down and discuss the issues," Mr Brogden said.

No need for a commission


The relationship between regulators and boards reached a nadir this week when the head of the government's financial system inquiry, David Murray, likened Mr Medcraft's campaign on culture to Adolf Hitler.

On Thursday, Mr Murray said a royal commission was not needed. "I can't see here evidence of entrenched corrupt behaviour," he said.

"There could be some illegal behaviour – and there's been a lot of activity in the banking sector since the crisis – but it's up to the banks to fix it."

Labor's threat will put pressure on the government given Mr Turnbull's strong words and growing calls from within the Coalition for a royal commission.

On Thursday, Mr Entsch joined the clamour.

"I welcome the Prime Minister's recognition of problems within the sector but an apology from the big banks and a commitment not to do it again in the future is not enough," he said.

Greens senator Peter Whish-Wilson repeated his call for a royal commission while, on Wednesday, Nationals senator John Williams, has who has been calling for a royal commission for the past 18 months, did the same.