Small businesses get 'bank inquiry'

The federal government has set up a royal commission-like inquiry into banks, but only to investigate how they treat small businesses.

The office of the Australian Small Business and Family Enterprise Ombudsman will use its powers, which are similar to that of a royal commission, to look at whether enough has been done to protect small businesses from banks.

The ombudsman has powers to compel the banks to appear and hand over documents needed for the inquiry.

Ombudsman Kate Carnell said the federal government had asked her to look into cases of small businesses severely impacted by questionable banking practices that were raised during an earlier parliamentary inquiry.

"There have been reforms made in this space, but what my office will do is make sure these changes go far enough to ensure small businesses are safeguarded against banking misconduct," Ms Carnell said in a statement on Wednesday.

"I'll be making recommendations to the government - and potentially to the banks as well - about possible changes, whether it be legislative, regulatory or even cultural, that may still need to be made to help prevent these sorts of situations happening in the future."

Her announcement came as the government faced a call in parliament from Labor to set up a royal commission into dodgy banking practices.