Former prime minister and treasurer Paul Keating, designer of Australia's four pillars policy, has hit out at the government for allowing too much power to be concentrated in the big banks.

In an interview with The Age, Keating criticised the $2.1bn acquisition of BankWest by CBA and warned that wealth management companies like AMP must be protected against bank takeovers.

The Australian Bankers' Association has long advocated the dismantling of the four pillars policy, which it says unfairly restricts growth in the industry.

Keating said that maintaining diversity and preventing massive growth were precisely what had kept Australian banks safe through the GFC. "In other words, you have discrete manageable units and you do not have contagion, you limit potential contagion [of bad loans]," he said.

Since the beginning of the GFC, the big four banks have increased their grip on the Australian mortgage market.