Members Equity Bank is looking at merger options, including with other regional banks and also building societies and credit unions.
"I'm simply saying there is a big opportunity and a social imperative for a new player to emerge in the small to medium end of the banking industry," MEB director Garry Weaven said at a media event to promote industry superannuation funds.
The Herald Sun and Financial Review reported Weaven's remarks.
Any merger could involve several small to medium banking or finance institutions, Weaven said.
"The small banks will need to think very hard about that and so will credit unions and building societies because there is no way that they can sustain themselves beyond the three-year deposit guarantee in a world dominated by the big banks.
"Members Equity has a really bright future in my view in whatever form that takes.
"Everyone can see that it is unsustainable to allow our banking marketplace to become less competitive."
Several months ago the board of Members Equity Bank engaged consultants LEK to undertake a strategic review following an injection of liquidity by larger shareholders.