With evidence of new banking atrocities coming out almost daily, far from undermining global confidence in our system, a royal commission may be the last chance we have to shore it up, writes Ian Verrender.

If Old Blue Eyes was around today he probably would have been tempted to change the lyrics to one of his biggest hits, to something like: "Bank and scandal, Goes together like a door and handle. You can't have one without the other."

There has been little consensus between the Government and the Opposition since Tony Abbott was elected to power in 2013. Until last Friday, opposing a royal commission into banking was one of them.

Despite mounting evidence of new atrocities on an almost daily basis, both the Coalition and the ALP steadfastly refused to countenance a full inquiry, on the premise that it could possibly undermine confidence in the financial system and thereby damage the economy.

That's a sound and strong argument that would carry enormous weight if not for the fact that Australia's banks have systematically undermined confidence in the financial system through reckless disregard for their clients and the economy.

Depending on how you measure it, Australian banks, which are underwritten by the taxpayer, are among the most profitable in the world and those who run them are among the highest paid employees in the land. They'd certainly like to keep it that way.

This may come as a shock but the finance industry is the biggest contributor to our political parties. According to Australian Electoral Commission documents, the banking industry shelled out more than $1.2 million in donations to federal Liberal and Labor parties in 2014. Surprisingly, Labor was handed the most with $650,000, while the Libs pulled a paltry $564,000.

While there is no disputing this generosity is rooted in a deep seated desire merely to oil the wheels of democracy, what is the betting that an urgent recalibration took place over the weekend on how the political donations should be divvied up as the election looms?

Bank execs lined up to denounce the move using a line that appeared almost, well, rehearsed, claiming that since they'd been subjected to so many inquiries lately, there was no point having another. Except, that is the point.

Whether it is rampant overcharging, disregard for clients over financial planning, refusal to pay out on insurance claims, mortgage fraud or - in the case that finally tipped the scales - manipulating the domestic interest rate market, the blame is directed at "rogue traders", acting alone and without the knowledge of management.

How is it that so many rogues are employed? And all in the one industry? Why is management always unaware?

As disturbing as recent revelations have been, there is a far greater cause for concern about the role our banks have played in exposing, not just our economy, but the global banking system to the kind of tremors that were experienced in 2008.

According to Forbes magazine, our big four banks rank in the top 25, with the Commonwealth at 14 and the National Australia at 25.

All of them, including the ANZ, are hugely exposed, not just to one country, but to one asset: property.

On average, about 60 per cent of their loans are over Australian property, primarily residential property, which on any measure now ranks among the world's most expensive.

And as Wayne Byers, the newish head of our banking regulator the Australian Prudential Regulation Authority, admitted last week, lending practices in the past few years were "eerily similar" to those that prevailed before the financial crisis. He told a conference in Sydney:

The issues that were on the radar screen then - buoyant housing lending, commercial property lending standards - are all things that are on our agenda again.

It was a rare moment of candour for our banking regulator. But one issue that APRA, the Reserve Bank and the corporate regulator have yet to concede is the potential fallout on global banking, should our property sector experience a serious shakeout.

One of the great concerns before 2007 was the extent to which our bank blithely expanded their lending to "low doc" customers. These were clients with insufficient documentation to prove their income and hence their ability to service their loans.

ANZ last month admitted at a fraud inquiry that prior to the financial crisis, a quarter of its loan portfolio was made of low doc loans but, in an extraordinary about-face, then argued that it had not misled shareholders when it reported in 2007 that these loans comprised just 2 per cent of its lending book.

Sorry, this video has expired Opposition Leader Bill Shorten calls for royal commission into financial services sector

Not surprisingly, defaults among this class were and still are much higher than in "full doc" loans. And while our regulators now claim that tighter regulations have curbed this class of loan, it would appear the banks merely have shifted the game.

Instead, there has been a worrying rise in "interest only" loans. Initially, this was designed for investors to maximise the benefits of negative gearing. If the idea is to make a loss on your housing investment, the last thing you want to do is pay down the principal.

Since 2008, however, there has been enormous growth in this type of lending, rising from 28 per cent of all new housing loans to 46 per cent.

While a belated crackdown late last year curbed this practice, it is uncertain how many owner occupiers, fearful at being priced out of capital city real estate, have taken on mortgages far bigger than they could ever service using interest only loans.

So how could this affect global banking? Easy. Since the financial crisis, our banks' exposure to mortgages has doubled, from about $700 billion in 2008 to an eye-watering $1.4 trillion now.

A large portion of the money that has fuelled the most recent phase of the property boom has come from offshore. It is raised in numerous ways, through bonds and what is known as Residential Mortgage Backed Securities.

Pretty much all of it is classed as AAA. That has global investors flocking for the paper, and allows our banks to secure the cheapest possible rate and maximise their profits here.

What no one has questioned is, what happens if either we get a spike in unemployment, or our interest rates rise? It would seem reasonable that a significant portion of that supposed AAA rated debt will default given many borrowers are unable to cover the full cost of a loan.

Macrobusiness economist Leith van Onselen estimates that one in four dollars of our bank assets is funded by offshore loans. A spike in offshore bank funding in the past two years has seen it rise to 54 per cent of GDP from about 40 per cent just four years ago.

If APRA was concerned about the possibility of a spike in mortgage defaults in 2007, as revealed by the ABC's Stephen Long last week, it is mystifying as to why it has allowed the situation to further deteriorate.

These are the questions a Royal Commission could ask. Rather than undermine global confidence in our system, it may be the last chance we have to shore it up.

Ian Verrender is the ABC's business editor and writes a weekly column for The Drum.