They also boosted risky mortgage lending, since brokers' earnings were linked to the size of the loans they sold.
Financial regulators were lax, negotiating minimal fines for those who broke the rules rather than taking them to court.
Sanctions were often "immaterial", the report stated. In the decade to June,
the infringement notices (a kind of fine) issued to large banks by the Australian Securities and Investments Commission, the conduct regulator, came to less than A$1.3m.
The institution hit hardest by scandal has been AMP, a wealth manager, which not only charged for non-existent services but then lied to the regulators about it.
It has lost its chief executive, chairman and half its board. AMP and the four biggest banks have agreed to repay A$216m charged for services they never provided.
Financial institutions are now scrambling to prepare for the inquiry's final recommendations, due in February.
They have tightened home-loan assessments, and some have said they will sell their wealth-management businesses. More than that may be needed.
The commission may call for statutory separation of lending and financial advice, and for an overhaul of bonuses.
It seems likely to demand better enforcement, rather than new laws (there are plenty already).
The conservative coalition government, which had at first opposed the inquiry, has allocated more money to the regulators.
It says a recently appointed counsel will improve the chance that misconduct will be punished in court. Yet the regulators' reputation has been damaged.
Allan Fels, the former chairman of the Australian Competition and Consumer Commission, thinks his old employer should be given greater power to step in.
Others call for an entirely new regulator.
The commission looks unlikely to be able to wrap everything up before the final report is due.
Mr Fels suggests that unfinished business could be turned over to other review boards.
Or the inquiry could be extended—an idea favoured by the Labor Party, which is on course to win an election due next year.
Either way, the banks stand exposed to potentially huge regulatory penalties and to consumer lawsuits.
The days since the interim report was published have seen billions of dollars wiped from their market capitalisation.