Bank executives will face closer scrutiny under new federal government measures targeting salaries and accountability.
The Banking Executive Accountability Regime (BEAR) will be established from July 1 after the Senate voted overwhelmingly in favour of the bill on Wednesday.
Under the laws, banks will be required to conduct themselves with honesty and integrity, while remuneration obligations will also be imposed on directors and senior executives.
The banking regulator will have beefed up powers to hand out substantial fines, withhold bonuses and more easily disqualify people for poor behaviour.
Treasurer Scott Morrison said the measures would encourage good behaviour and ensure banks and individuals are held to account if they failed to meet the standards expected of them.
"The Turnbull government is delivering on its promise to hold banks and their senior executives to account, with tougher consequences if expectations are not met," he said.
The BEAR has faced criticism from within government ranks, with MPs arguing it was a "bank-bashing" exercise which would add unnecessary regulation to the banking sector.
Labor supported the bill, but accused the government of using the measures, announced in last year's budget, as political fix to ward off calls for a royal commission into the banking sector.
Prime Minister Malcolm Turnbull bowed to internal pressure in November, relenting on a royal commission which is due to kick off next week.
"We saw the world's biggest backflip last year," Labor's Chris Ketter told his fellow senators.
"At 10 minutes to midnight the treasurer and the prime minister were brought kicking and screaming to a royal commission."
The Greens unsuccessfully tried to amend the bill to cap executive payments and make penalties for banks correspond to their size.
"We're putting the offer to the Senate to put a brown bear, a black bear or a grizzly bear in bed with these CEOs," Greens senator Peter Whish-Wilson said.
Small and medium banks will be given an extra year to prepare for the BEAR after the government agreed to Labor's amendments in the lower house.
