Manipulating financial benchmarks will become a criminal offence in Australia, the government announced on Tuesday, as the nation's largest lender defended its huge profits in a grilling by lawmakers over its practices.

Treasurer Scott Morrison said the tough new rules would "ensure that past egregious conduct by the banks in manipulating benchmarks is prevented in the future".

Criminal penalties, including jail time, could be imposed for manipulation of equity indexes and Treasury Bond Futures settlement prices.

They would also apply to bank bill swap rates (BBSW), which are used to set the price of financial products such as bonds, loans and derivatives.

By providing false information to help set the BBSW, banks could potentially make millions in profits.

Australia's corporate regulator, like its counterparts in the United States and Britain, has been probing multinational banks over benchmark interest rate-rigging.

Three of the country's big four lenders -- Westpac, ANZ, and National Australia Bank -- are facing allegations they manipulated the interbank lending rate between 2010 and 2012. None of them has admitted any wrongdoing.

"This package will ensure our regulatory regime is as modern and secure as any comparable regime found in equivalent foreign jurisdictions, such as the United Kingdom and the European Union," Morrison said of the new rules, which will come into effect in January 2018.

Criminal acts will include making false or misleading statements or engaging in dishonest conduct in relation to determining a BBSW or other financial benchmark.

- 'Permanent cultural change' -

The new regulations came as Commonwealth Bank chief executive Ian Narev Tuesday appeared before a parliamentary committee for a new annual grilling of the country's big banks designed to make them more accountable.

The heads of Westpac, ANZ and NAB will answer questions by the House of Representatives economics committee later this week.

Narev said he welcomed the chance to "explain our decisions" and would listen carefully to suggestions about areas in which banks could improve.

He defended the bank's huge net profits and executive pay, at a time when it was under scrutiny over the fees it charges customers and a failure to pass on in full interest rate cuts by the Reserve Bank of Australia.

"You can’t have a prosperous economy unless banks are strong,” he said.

"Our profits are at a level that will enable us to keep the confidence of global funders, who play a critical role in our ability to consistently extend credit."

The Commonwealth -- Australia's largest bank -- posted a record Aus$9.23 billion (US$7.08 billion) annual net profit in the year to June 30.

The "big four" lenders -- among the developed world's most profitable -- have been under the microscope in recent years amid allegations of dodgy financial advice, life insurance and mortgage fraud.

Prime Minister Malcolm Turnbull called the hearings in a bid to counter demands by the Labor opposition for a more powerful and wide-ranging national inquiry into the finance industry, spurred by the rate-rigging allegations.

"What we're setting in place here is ongoing, permanent cultural change and change that will make the banks ensure that they are accountable," Turnbull said in announcing the hearings in August.

The last major probe into the sector was completed in 2014 and called on domestic banks to hold more capital to address weaknesses that emerged during the 2007-2008 financial crisis.

Source : AFP