Customers are starting to realise there's a different way of doing their banking. Credit:Paul Rovere "It would then be up to a royal commission to review the body of evidence and call witnesses and ultimately, provide recommendations for a banking system that works for Australian consumers." In an earlier interview on Sky News Mr Thistlethwaite left the door open to the move, which could be politically popular with voters who have seen the big four banks hit by scandal in recent years, and which could potentially see retail banking separated from wealth management and super. The Turnbull government has opposed a royal commission and has introduced a number of reforms to clean up bank bad behaviour, including regular appearances by bank chief executives in Canberra before a parliamentary committee. Mr Thistlethwaite was asked: "if you win government - it looks like you're going to win government, so we're going to have a royal commission - if that happens, is it possible that Labor might look at legislation to break up the banks?"

A recent survey found big gaps in the financial knowledge of many respondents, despite high levels of confidence. Credit:James Davies The Sydney-based MP responded: "Yeah, there's a whole host of people who argue that we should break up the retail banking sections, so deposits and mortgages from the wealth management, the insurance that they've added on over recent years, and it's an approach that was taken in the US, it was watered down unfortunately by Bill Clinton. "It's something that they're doing in the UK and there's calls for it to happen in Australia, that's something that would be aired and looked at in a Royal Commission, and someone that was independent of government, that was an expert could advise the Government on whether or not..." "So it would be on the table but it would be a case for the royal commission to delve into the viability of it?" host Peter Van Onselen asked. "Yeah that's right, it would certainly come up in the context of a royal commission and would be something that any government would take advice on," Mr Thistlethwaite replied.

The Labor MP's comments are not official party policy and a move to break up the big four - Westpac, the ANZ, the National Australia Bank and the Commonwealth Bank - would be a major step that has not previously been canvassed by Labor. Labor has not released the terms of reference for a banking royal commission, arguing it will do so if it is elected to government and the inquiry goes ahead, though it has released some initial objectives for the inquiry. ABA chief executive Steven Munchenberg said Mr Thistlethwaite's comments "reinforce why we are extremely nervous about the risk of a royal commission, should there be another crisis of confidence in the financial system globally". "International investors will re-assess the risk of providing funds to Australia at a time of global uncertainty if they see that there is a royal commission looking at possibly breaking up the major banks. That will undoubtedly lead to a higher risk assessment and the prospect that international investors will stop funding Australia's banks and therefore Australia will face a credit crisis." Liberal assistant treasury minister Michael Sukkar said Mr Thistlethwaite's comments were "an extraordinary admission".

"The four pillars policy has been the cornerstone of our stable banking and financial services industry," he said. "That the Labor Party is seeking to use the banking royal commission as a vehicle to break up the banks is frightening for the economy". Last May, Mr Bowen said the "vertical integration" of banks was a "serious issue" that would be examined by a potential royal commission into the sector. Follow us on Facebook Follow James Massola on Facebook