Malcolm Turnbull says there is more to be done to clean up the banking industry and ensure customers are put first.
As the royal commission continues to expose dodgy conduct in the banking sector, the Productivity Commission on Friday released its long-awaited report into competition.
The report found the Australian banking sector is dominated by a handful of players.
Four banks own more than 75 per cent of the market for loans, personal deposits and credit cards and four insurance giants have in excess of 80 per cent share of the market for lenders mortgage insurance and travel insurance.
The commission noted the banks' dominant position had enabled them to withstand shocks such as the global financial crisis, but there were also negative consequences.
"There is evidence that they have sustained prices above competitive levels, offered inferior quality products to some groups of customers, subsumed much of the broker industry and taken action that would inhibit the expansion of smaller competitors in some markets," the report found.
"All are indicators of the use of market power to the detriment of customers."
Mr Turnbull told reporters in Sydney the banks need to change their culture.
He said the recent payouts by big banks and extra resources for regulators showed the government was serious.
"We are determined to hold the wrongdoers to account and we are changing the law to make sure that banks do the right thing in the future, but there will be more to be done."
Treasurer Scott Morrison told a business forum in Sydney the solution did not lie in getting rid of the "four pillars" banking policy.
"I don't think it would see a major transformation in the dynamics of what is happening in the banking sector," Mr Morrison said, when asked about scrapping the policy.
"What's more important is the strength of the consumer, the customer, is what is lacking in the Australian banking system."
He said the economy required banks to be strong, stable and profitable but competition should not be constrained.
While new regulations, conduct codes and penalties were important to ensure banks met community expectations, customers needed greater power and information to make decisions.
The report found customers were not being given accurate details on the kind of deal or discount they are receiving and are unable to compare precisely with other products orother customers.
While there were almost 4000 different residential property loans in the Australian market and more than 250 credit cards, products and pricing were confusing.
The commission described it as a "blizzard of barely-differentiated products".
A recommendation in the report to give the Australian Competition and Consumer Commission greater scrutiny powers over banks would not be accepted because the ACCC itself didn't agree with it, Mr Morrison said.
However the idea of ensuring all banks to have a "principal integrity officer" obliged by law to report directly to their board and report independently to ASIC if necessary was "worthy", he said.
The government will also look at the findings on mortgage brokers and changes to the payments system.