Malcolm Turnbull says he didn't hold a banking royal commission two years ago because he wanted to ensure reforms such as penalties were in place first.
Malcolm Turnbull says starting a banking royal commission two years ago would have helped him politically but he wanted to fix the laws rather than wait for a report.
The prime minister originally strongly rejected the need for the investigation into Australia's financial service sector before eventually relenting when Nationals MPs threatened to cross the floor.
After shocking evidence of financial abuse was uncovered, Mr Turnbull has faced criticism for not starting the commission sooner.
"You're all right when you say it would have been better for us politically if we had done so years ago," Mr Turnbull told reporters in Berlin on Sunday.
"No doubt Bill Shorten should have called a royal commission when he was financial services minister in the Labor government.
"But the reason I didn't proceed with a royal commission is this: I wanted to make sure we took the steps to reform immediately, and got on with the job."
The prime minister gave a speech at a Westpac function in April 2016 where he tore into the banks for their "unacceptable behaviour" but he refused to back a royal commission.
Mr Turnbull said he was concerned a commission would drag on and paralyse reform, as everyone would wait until it had made recommendations.
"With the benefit of hindsight and recognising you can't live your life backward, isn't it better we've got on with all those reforms?" he said.
Under new proposed laws, bank executives can be heavily fined and jailed while banks can lose up to 10 per cent of their turnover, and the corporate watchdog has been beefed up.
Opposition Leader Bill Shorten has written a letter to Mr Turnbull demanding an apology for two years of inaction, and a compensation scheme for victims.
"Along with many Australians, I can't help but wonder how many customers were ripped off by this kind of misconduct in the two years it took the government to relent and agree to Labor's calls for a royal commission," he writes.
"How many Australians continued to be hit with 'fees for no service' in the two years the government continued to protect the banking industry from a royal commission?"
The prime minister said the compensation scheme is already in the commission's terms of reference.
"I think what Bill should do is, he should read the terms of reference," Mr Turnbull said.
He would not be drawn on Senator Pauline Hanson's call for the big banks to miss out on a proposed corporate tax cut and put that money towards paying back victims.
"Where banks have done the wrong thing they must pay compensation," Mr Turnbull said.
Nationals senator John 'Wacka' Williams, who was a strong advocate for an inquiry, predicts more wrongdoing by the banks will be uncovered.
"If I was opposing the royal commission like many of my colleagues did, or most of them, I'd do Barnaby (and say) 'look I had it wrong'," he told ABC radio on Monday.
Given the evidence heard already, Mr Shorten also insists it's time for the government to consider a compensation scheme for victims of proven wrongdoing and wants the commission to be given more time and resources if requested.
Finance Minister Mathias Cormann has said if the commissioner asks for a longer inquiry it will be acted upon by the government.