The banking royal commission has heard an elderly, seriously ill woman faced homelessness after her daughter's business failed.

Key points: Carolyn Flanagan's blindness means she cannot read or write, has memory loss, osteoporosis and has trouble speaking

Carolyn Flanagan's blindness means she cannot read or write, has memory loss, osteoporosis and has trouble speaking Faced the prospect of homelessness after using her home to guarantee daughter's loan, before daughter's business failed

Faced the prospect of homelessness after using her home to guarantee daughter's loan, before daughter's business failed Westpac executive says nothing "technically" wrong with Ms Flanagan being allowed to act as guarantor

Carolyn Flanagan cannot read or write due to blindness caused by glaucoma, she has trouble speaking due to the effects of cancer surgery, suffers memory loss and has osteoporosis, among other medical problems.

The pensioner sought help from Legal Aid NSW when Westpac tried to take her home, which was used to guarantee her daughter's loan. A complaint was taken to the Financial Ombudsman Service, which found in Westpac's favour.

It was only a last-ditch effort by Ms Flanagan's Legal Aid lawyers that managed to keep her in her home.

Solicitor Dana Beiglari told the hearing her manager at the time "contacted another consumer advocate to see if he had a senior contact at Westpac who we could escalate this matter to, given our client was facing homelessness in her old age".

Ms Beiglari sent a letter to Westpac outlining Ms Flanagan's medical circumstances and managed to secure a "life interest" in the property for her, which means she can remain in the home until she dies or decides to sell.

Counsel assisting the inquiry Michael Hodge QC asked Ms Beiglari about the Westpac employee's response to the case.

"What that employee of Westpac expressed to you was surprise with the thought that Westpac would be evicting and it wasn't in line with what Westpac would normally do?" he asked.

"Yes, that's correct," Ms Beiglari answered.

Westpac's Alastair Welsh said there was nothing "technically" wrong with Ms Flanagan being allowed to act as guarantor. ( ABC )

Ms Flanagan maintained a sense of humour under questioning. After Mr Hodge listed off her litany of health issues, including depression, she quipped "that'd depress anybody".

She gave her evidence through a video link as she was too unwell to travel. Westpac's lawyers questioned her recollection of events and the amount of the loan.

Westpac executive Alastair Welsh followed Ms Flanagan and Ms Beiglari in giving evidence. He said there was nothing "technically" wrong with Ms Flanagan being allowed to act as a guarantor.

"My review of the file shows we followed the process I would want the bank to follow," Mr Welsh said.

However, he admitted there were some problems with the bank's handling of the case once the loan failed.

The inquiry heard it was Westpac policy to "exercise extreme caution" with parental guarantees.

Mr Welsh admitted there were warning signs in Ms Flanagan's case that should have been observed by the banker.

"She suffers from quite debilitating health conditions. Would that be a relevant factor?" Mr Hodge asked.

Mr Welsh agreed and said there were no comments on Ms Flanagan's file noting her condition.

The bank manager involved is no longer employed by Westpac.

Parents feel pressured to help children: lawyer

Ms Flanagan admitted she would have "signed anything" to help her daughter.

"If you can't help your children, who can you help," she said.

Ms Beiglari told the hearing elderly parents were often worried about family breakdowns, which could have "devastating" consequences.

"People often want to put family first … or feel some pressure to do what the child asks them to do in order preserve the relationship," she said.

Ms Beiglari said it was "very rare" for her clients to understand the consequences of guaranteeing loans with their family home, including the potential for their Centrelink payments to be reduced or cut off if the guarantee was called upon.

Earlier, the inquiry heard the extent to which owners' personal and family assets were intertwined with their businesses, with about one third of small business loans from the major banks secured by residential properties.

Mr Welsh will face more questions tomorrow.