A royal commission into Australia's major banks has been killed off after a Labor move to establish the inquiry was defeated in Parliament.

That motion, put forward by Opposition Leader Bill Shorten and backed by independent MP Bob Katter, called for a royal commission to ensure a "thorough investigation of the culture and practices within the financial services industry".

Bill Shorten speaks on a banking royal commission. Credit:Andrew Meares

The motion had been much-anticipated and to head off the move, Coalition MP George Christensen - who has himself previously supported a royal commission - moved a counter motion that killed off Labor's proposal and made clear he was satisfied with his government's response.

At the same time, Financial Services Minister Kelly O'Dwyer on Wednesday announced, minutes before Labor's parliamentary manoeuvre on the royal commission, a new inquiry into the banks' small business lending practices, which could lead to further regulation.