Commissioner Kenneth Hayne has called for banks to be banned from paying trail commissions on new loans, and for up-front commissions from lenders to be phased out over two to three years and replaced with an up-front fee from consumers.

The government is cautious about the recommendation because of the harm this might do to competition, given brokers are crucial for many smaller lenders.

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The debate is a polarising one. Consumer groups support a ban on commissions, but detailed reviews by the Productivity Commission and the Australian Securities and Investments Commission have not called for bans on all mortgage broker commissions, and the Reserve Bank has backed the government's cautious response.

The government plans to ban trail commissions - typically worth about 0.15 per cent of a loan and paid over its life - from next year, but allow the larger up-front commissions to continue, and order a review of the issue in three years, while Labor has backed Commissioner Hayne's tougher recommendation.

Asked if he supported the commissioner's recommendation for both trail and up-front commissions to be removed, Mr Hartzer said: “That’s clearly where we’re headed, so we’ll deal with that."

"I think that as that plays out it will have some significant implications and it’s probably a little too soon for us to tell exactly what the consequences of all that will be.”

Large banks are seen as key winners from removing broker commissions, with analysts recently estimating the major banks alone could save $1.68 billion a year if commissions were axed.

Mortgage and Finance and Association of Australia chief executive Mike Felton argued few customers would be willing to pay an up-front fee to a mortgage broker, as an alternative to the current commission-based model.

"I can understand their position, but we would say prioritise customers' interests ahead of bank profits," Mr Felton said.

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After Commonwealth Bank chief Matt Comyn this week said brokers should "thrive", Mr Hartzer said he thought brokers had "a place in the market".

"Customers value the advice they get from mortgage brokers. They certainly make it more visible to customers what choices are out there. So I think brokers under any system, if they’re really adding value to customers, will continue to have a proposition and have a role,” he said.

“But like any industry, brokers are subject to some of the same pressures from disruption and will need to adopt some new practices and adapt their business models to demonstrate that they’re continuing to add value to customers, and the brokers that do that well I think will continue to have a good future.”

The chairman of the Australian Competition and Consumer Commission, Rod Sims, said brokers played a "serious role" in competition because they were more heavily used by smaller banks. But he said the ACCC had not looked at how different remuneration models would affect the viability of brokers.

Labor did not back down from its position to adopt the customer-paid mortgage broker fee, as recommended by the royal commission, despite the Reserve Bank governor raising concerns about the impact on competition.

“The royal commission recommendation itself is one that says it should be implemented over a period of time and with cautions and that’s certainly what we will do with all involved,” shadow treasurer Chris Bowen said.

Mortgage brokers arrange about 60 per cent of all new home loans, with a business model that relies on about $2.4 billion a year in commissions paid by banks.

Westpac also confirmed on Thursday it would close 22 branches, from its network of roughly 1000 outlets, saying customers continue to shift towards digital banking.

After the RBA on Wednesday took an interest rate hike off the table for 2019, Mr Hartzer said he wasn't surprised at the comment because Westpac had been predicting no rate hikes: “We continue to think the economy is fundamentally sound,” he said.

Mr Hartzer said Commissioner Hayne's recommendation for no change to responsible lending laws was sensible, as this left it to the banks and regulators to work out the balance between consumer protection and credit availability.