Prime minister Malcolm Turnbull has announced a 12-month royal commission into misconduct in the financial sector after the CEOs and chairs of ANZ, Commonwealth Bank, Westpac and NAB called on the government to commence a royal commission into the banks.
The banks' letter to treasurer Scott Morrison calling for a royal commission came as Nationals MPs edged closer to introducing legislation for a banking inquiry into the parliament. This legislation, which would have been supported by Labor, the Greens, and some cross bench MPs, would have potentially undermined the government's authority if it had passed into the parliament against the wishes of the government.
While they had long been opposed to any form of inquiry into banks, the executives said in the letter, published on Thursday, that the ongoing political uncertainty around whether or not there will be some sort of inquiry into the banks must end.
"It is now in the national interest for the political uncertainty to end," the banking executives said. "It is hurting confidence in our financial services system, including in offshore markets, and has diminished trust and respect for our sector and people.
"It also risks undermining the critical perception that our banks are unquestionably strong."
The banks said that the terms of reference for any royal commission should be thoughtfully drafted and free from political influence.
"Its scope should be sufficient to cover the community’s core concerns which include banking, insurance, superannuation and non-ADI finance providers. Further to avoid confusion and inconsistency, the inquiry must to the most practical extent replace other ongoing inquiries."
Turnbull said at a press conference on Thursday morning that while both the government and the banks believed it wasn't necessary to hold a royal commission, the speculation was harming the economy.
"The speculation about an inquiry cannot go on," he said. "It's moving into dangerous territory where some of the proposals being put forward have the potential, seriously, to damage some of our most important institutions. We have got to stop the banks and our financial services sector being used as a political football.
"It may be politically advantageous for some people to do so. But it runs the risk of putting vital economic interests at stake and runs the risk of putting them under threat."
Turnbull said the commission would be on misconduct in the financial services industry, and would not put "capitalism on trial".
"This should not be a commission that runs forever, costing many hundreds of millions of dollars, as would've been the case under some of the proposals," he said.
"The terms of reference will ensure a responsible but comprehensive investigation into how financial institutions have dealt with cases of misconduct in the past, and whether those examples expose issues in terms of the cultural and governance issues in terms of the regulation and supervision of the industry."
The inquiry will cover the big four banks, as well as the smaller banks, wealth managers, superannuation providers and insurance companies.
The government had long been opposed to any such inquiry. Attorney-general George Brandis said three times in the Senate this week that a royal commission would not be a good way to solve problems.
AG George Brandis said THREE times in #SenateQT on Tuesday the government wouldn't have a banking royal commission… https://t.co/aavEwzxyJE