The package includes reviewing sales commissions, supporting whistle-blower employees and black-listing individuals for poor conduct, the Australian Bankers Association (ABA) said.

The politically charged announcement is the first co-ordinated industry-wide step by Australia's biggest banks to clean up their act in the wake of reputationally damaging probes into wealth mismanagement, insurance scams and benchmark interest rate rigging.

"We are very conscious that there are issues out there that people are concerned about," ABA Chief Executive Steven Munchenberg told reporters on Thursday.

"We are now responding to some of the current concerns."

Major lenders National Australia Bank (>> National Australia Bank Ltd.), Commonwealth Bank (>> Commonwealth Bank of Australia), Westpac (>> Westpac Banking Corp) and ANZ Banking Group (>> Australia and New Zealand Banking Group) successfully pulled through the 2008 financial crisis but are now facing mounting criticism over misconduct even as they continue to deliver record profits.

The plan announced on Thursday, parts of which are subject to regulatory approval or legislative reform, would be overseen by an independent expert, the ABA said, although it gave no details about specific measures that would be taken.

The review would also look at the sensitive issue of remuneration, sales targets and incentives that have encouraged misselling of financial products, Munchenberg said.

It comes as political pressure is piling on Prime Minister Malcolm Turnbull to order a high-powered judicial inquiry into financial industry misconduct as he campaigns for a federal election in July.

Turnbull and the ABA have rejected calls from the opposition Labor Party for a Royal Commission into the industry, saying the existing watchdog and self-regulation are enough.

Banking analysts say a Royal Commission could open a can of worms and expose top executives, who have so far avoided direct responsibility, to intense scrutiny about what they knew about malpractices in their firms.

Turnbull and Treasurer Scott Morrison met with bank bosses earlier Thursday to discuss the reforms.

"There have been some failures, we acknowledge that ... and we are very concerned about the grief and loss that individuals have suffered," Turnbull told reporters.

He said he told executives there had to be a "demonstrated change in the culture of banks" to rebuild community trust.

UNDER PRESSURE

The banks' announcement came a day after Turnbull's conservative government announced reforms to beef up the powers of the markets watchdog, with the industry itself asked to foot the bill of A$127 million (69 million pounds).

Asked on Melbourne radio whether he believed the banks' assurances that those costs would not be passed on to customers, Labor leader Bill Shorten said: "Even a crocodile wouldn't swallow that."

The political debate is a new headache for Australia's banking chiefs who are already being forced to respond to investor concerns about rising bad debts and slowing profit as the commodities super cycle plumbs new lows.

Australia also faces the risk of losing its coveted AAA credit rating, which could raise the banks' costs of doing business.

All this is elevating the level of nervousness for investors, particularly retail shareholders, Morningstar analyst David Ellis said.

"We've not seen a big bounce in bank (shares). It's just an unrelenting flow of bad news which is having an effect on the share price," he said.

The four big banks are among the top losers on the benchmark share index so far this year, down between 6 and 13 percent.

On Thursday, they were up 1.3-2.0 percent in a firm broader market.

(Reporting by Swati Pandey; Editing by Stephen Coates)

By Swati Pandey