Australia's peak business lobby group has urged the federal government to prevent any future merger that would consolidate the power of the big four banks.
In a submission to the Senate inquiry into banking competition, the Australian Chamber of Commerce and Industry (ACCI) also urges the government to consider initiatives that would aid the development of a fifth major bank.
The call comes two years after Treasurer Wayne Swan approved the merger of the Westpac and St George banks, as the global financial meltdown threatened the viability of lenders around the world.
With Australian banks surviving the crisis, ACCI said the government needed to rule out any significant future merger or acquisition that would consolidate the power of any of the four major banks.
The employer group which represents 350,000 firms also calls on the government to explore the feasibility of a temporary small business loan guarantee scheme, an idea which operates in the US, UK and Canada.
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A group representing mortgage brokers and many non-bank lenders also has weighed into the debate on banking competition, accusing the government of not doing enough to support smaller players.
The Mortgage and Finance Association of Australia said the commonwealth's $16 billion investment in mortgage-backed securities, to enable non-bank lenders to issue loans, had not been enough.
It urged the federal government to look at Canada, which has spent $300 billion on mortgage securities since the global financial crisis hit in 2008.
"This should not be seen as a knee-jerk measure to band aid over a temporary problem but rather a permanent system to ensure there are appropriate levels of competitive funding available to all lenders, irrespective of the economic environment," it said in its submission to the inquiry.
But Aussie Home Loans executive chairman John Symond has come to the government's defence, arguing in his submission that the $16 billion spent on mortgage-backed securities had a "moderating effect" in the lending sector.
Mr Symond spoke out against the creation of a government-run bank to boost competition, and argued more regulation would, in fact, hinder competition within the banking sector.
The Real Estate Institute of Australia did not agree with this theme.
It has urged the Senate committee to explore a mechanism whereby banks would have to justify any changes in their lending rates, and keep them to a level accounted for by changes to borrowing costs.
The Senate committee into Australian banking sector competition has received 44 submissions so far.
