Shorten urges bank inquiry after rate snub

The big four banks' refusal to pass on the official cash rate cut to customers is one of the reasons why a royal commission into the sector is needed, says Labor leader Bill Shorten.

ANZ, Commonwealth Bank, National Australia Bank and Westpac made only modest reductions to their standard variable mortgage rates of 0.10 per cent to 0.14 per cent compared with the Reserve Bank's reduction of 0.25 per cent.

Prime Minister Malcolm Turnbull admonished the banks on Wednesday for not passing on the cut.

Mr Shorten called Mr Turnbull's "lecture" to the banks "weak and pathetic" and said confidence had been eroded in the system.

"The decision by the banks to hold back the rate cut from hard-working Australians does nothing to help their credibility," he said.

"Mr Turnbull will give the big banks another empty lecture and a tax cut. I'll give the banks a royal commission."

Australian Bankers' Association chief executive Steven Munchenberg said a royal commission was unnecessary because the institutions were already dealing with the issues.

"It's better for us to be fixing those problems now than waiting for some drawn out royal commission," he told ABC radio.

He said a royal commission would send a message to the world that Australia's banking sector was not as stable as it seems to be.