A parliamentary inquiry into small bank competition has ended up in large part focusing on one big bank - Westpac.
Financial crime regulator AUSTRAC is taking Westpac - Australia's second largest bank - to court over 23 million breaches of money laundering laws, some linked to child exploitation.
Australian Banking Association chief executive Anna Bligh assured the House of Representatives' economic committee that every bank has a common interest in fighting financial crime.
"I have no doubt there will be lessons to be learnt industry-wide from these investigations," she told the committee in Canberra on Friday.
Ms Bligh, a former Labor Queensland premier, expects every bank is looking at their largely automated systems and looking at the resources they allocate to them.
"This is an evolving space and every bank has a common interest in ensuring that they are working to boost our capability nationally in the area of fighting financial crime in all forms," she said.
The association has 22 banks under its umbrella, including the big four, regional banks and international banks with an Australian banking license.
Friday's hearing was an expansion of the committee's established investigations into the big four banks and follows the Hayne banking royal commission.
Ms Bligh said the commission revealed the "hurt and pain" banks had inflicted on their customers.
"The Australian people rightly expect a fundamental shift across banks in culture and service. I can say to you all today that this shift is well under way although by no means finished," she said.
She believes the implied government guarantee enjoyed by the big four banks - often termed as 'too big to fail' subsidy - should be extended to small- and medium-sized banks.
Bendigo and Adelaide Bank managing director Marnie Baker agreed, telling the hearing the implicit guarantee has resulted in an "uneven playing field".
"The flow-on effect to credit ratings means there is quite a divergence in the cost of funding for the major banks versus regional and other small banks," she said.
"That can be quite substantial if you are raising funds in the wholesale market."
Suncorp CEO David Carter said since the global financial crisis the big banks have increased their mortgage market share from 75 per cent to 82 per cent, while growth among non-bank lenders has also been "disproportionately fast".
"Regional banks are being squeezed by regulatory advantage that is given to the major banks on one side and to non-bank lenders on the other," he said.
"We support the Productivity Commission's position that competition underpins economic efficiency, gives consumers choice, creates incentives for companies to innovate which enables them to win and retain customers by reducing their costs."
Bank of Queensland managing director George Frazis said his bank is in consultations with the bank regulator - the Australian Prudential Regulation Authority - with a view to taking on a greater risk profile to improve competition.
Macquarie Group, Australia's largest investment bank, told the hearing it was difficult to measure whether the bank had benefited from the public outrage over the misdemeanours of the big four banks that were revealed in the royal commission.
"There hasn't been a finding against us in the royal commission," deputy managing director Greg Ward said.
"Maybe that has helped our reputation on a relative basis. But I think the climate is pretty negative around banks overall."
Australian Associated Press