Malcolm Turnbull says the banking watchdog's inquiry into Commonwealth Bank will take six months whereas Labor's idea of a sector-wide royal commission would at best take three years.
The Australian Prudential Regulation Authority on Monday announced it was setting up an inquiry after a series of issues at the Commonwealth Bank that have raised concerns about its governance, culture and accountability.
It will run in tandem with money movement regulator AUSTRAC's prosecution of CBA over an alleged money-laundering scandal.
Opposition Leader Bill Shorten described it as yet another inquiry into the banks.
"When will the Turnbull government finally do what it knows needs to be done ... which is to have a royal commission into our banks," he told reporters in Melbourne.
But the prime minister said APRA will "surgically" focus on the CBA and report back in six months.
"If you had a royal commission in the banks ... you would be flat out getting an outcome in three years," Mr Turnbull told reporters in Cooma, southern NSW.
Treasurer Scott Morrison said it was appropriate the regulators undertake such inquiries.
"They are taking action now," the treasurer said.
Shadow treasurer Chris Bowen, while backing APRA's investigation, is bemused Mr Morrison believes a royal commission is not required.
During the past 18 months alone there had been more than $300 million in fines and compensation paid from across the sector, Mr Bowen said in a joint statement with Labor's financial services spokeswoman Kay Gallagher.
"The simple fact is we need to ensure Australia's banking system is customer focused and the best it can be across the board," they said.
