The Federal Government has backed moves to strengthen competition in Australia's home lending market while flagging action to crack down on excessive credit card fees.

Key points: Government accepts all but one of financial system review recommendations

Government accepts all but one of financial system review recommendations Moves to strengthen competition and generate stronger reserves for banks

Moves to strengthen competition and generate stronger reserves for banks Flags crack down on unfair credit card surcharges

Flags crack down on unfair credit card surcharges Promises to place tougher controls on financial advisers

The Government has also promised to tighten standards for financial advisers as part of its long-awaited response to the financial systems inquiry by former Commonwealth Bank chief executive David Murray.

Banks will gradually build up their financial reserves or "capital levels" and competition will be encouraged betweens home lenders through a process the Australian Prudential Regulation Authority began in July.

By the middle of next year, the Government will legislate to ban unfair card surcharges that are greater than the cost of lenders to accept payment by card, with the crackdown to be phased in.

"We think that consumers are entitled to a very fair deal here ... to get exactly what they are being represented to be getting, which is an additional charge that recovers no more than the merchant's costs," Prime Minister Malcolm Turnbull said.

Treasurer Scott Morrison added: "We will make the Australian Competition and Consumer Commission responsible for enforcing these surcharging regulations, to ensure consumers are treated fairly and not over-charged when they pay using a card."

The Government is promising to raise "professional, ethical and education standards" for financial advisers by requiring them to hold a degree, pass an exam, do continuous "professional development", sign up to a code of ethics and undertake a professional year before they can advise clients.

"Australia can now be confident that our financial system remains the best in the world," Mr Turnbull said.

The Government has agreed to all but one of the report's 44 recommendations, rejecting the idea of stopping direct borrowing by superannuation funds.

The Productivity Commission will be tasked to review the superannuation system, described as "fragmented, costly and suffering from a lack of member engagement", to develop alternative models for allocating default fund members to products.

Laws will be passed next year for stronger penalties against superannuation fund directors.

"We will also work closely with industry to provide retirees with more flexible and reliable retirement income products and move to extend the choice of fund arrangements to more employees by the inquiry," a statement from Mr Turnbull said.

Banks will decide whether to pass on costs: Munchenberg

Australian Bankers' Association chief executive Steve Munchenberg said banks would decide whether to pass on the extra costs to consumers.

"The reality is higher capital levels make banks stronger, but are also additional costs for banks," he told ABC News 24.

"They will be passed on in part to shareholders, including our own superannuation funds or to customers.

"Banks will have to make a judgement about how to balance that.

"We have already seen one bank decide it will pass on some of the higher costs of capital," he added, referring to Westpac's decision to raise home loan interest rates last week.

However, he said the additional cost would help to ensure a more secure future.

"The reality is that a stronger, safer banking system is a more expensive one," he said.

"We will have to pay for that safer banking system.

"At the end — I know people sitting around the kitchen table won't buy this — but if we have a strong banking system when the next crisis hits, people won't lose their jobs and so you can see these additional costs as an investment in a more secure future."

Mr Munchenberg did not speculate whether the changes would impact upon interest rates, but Mr Turnbull said he did not believe the changes would lead to an increase.

Mr Morrison, however, stressed that any decisions made by banks in relation to the changes would be purely commercial.

"A bank's decision will always be a commercial decision and it's always up to the bank to explain their decisions to their own customers," Mr Morrison said.

When asked if he thought the changes would lead to banks raising interest rates, Mr Turnbull said: "I don't believe so."

"But it is ultimately a matter for them and of course for the market," he said.

Choice, Greens welcome action on credit card surcharges

Choice chief executive Alan Kirkland welcomed giving the ACCC power to act on excessive credit card surcharges.

"We are particularly pleased to finally see some action on credit card surcharges, which have driven Australia consumers mad," he said.

"We've seen outrageous surcharges over the years and we'll finally have a regulator with the teeth to knock them out of the system."

Greens treasury spokesman Adam Bandt also welcomed the move, but said the crackdown should extend to bank ATM fees.

"If credit card operators are now not allowed to make a profit out of the cost of using your card, then nor should banks be able to," he said.

Labor supports some measures, but differs on superannuation

Labor welcomed moves to crackdown on unreasonable credit card fees and to lift the standards for financial advisors, but said the Government had unwound its reforms in the area.

The Opposition said it was willing to discuss supporting legislation to enshrine the aims of superannuation, but pointed out there were policy differences, with Labor arguing for an end to superannuation concessions for wealthy Australians to save $14 billion over 10 years.

"We've consistently said this would be best done in a bipartisan basis," Opposition treasury spokesman Chris Bowen.

"If the Government seeks to play wedge politics on an objective for our superannuation system that would be a most unfortunate approach."