A fiery exchange at the banking royal commission has revealed that a senior bank boss protected his executives from a million-dollar cut to their bonuses, despite them overseeing major legal breaches.

NAB chair Dr Ken Henry told the commission on Tuesday the bank’s risk committee had given CEO Andrew Thorburn two options on executive remuneration in 2016.

One was that executives be paid their full entitlement of bonuses and another that they be paid 95 per cent of their incentive entitlement. Mr Thorburn chose the first option. Rather than cutting their pay, the board demanded an “uplift in performance” from the executives.

Mr Thorburn’s recommendation document to the board did not mention the fact that huge scandals had emerged over fees for no service, foreign exchange rate and bank bill swap rate rigging. Dr Henry agreed there was a “concern … that Andrew Thorburn’s email did not mention these matters”.

Dr Henry defended the payment of the full bonuses because the board had insisted on the performance “uplift”.

When pushed on what other action could have been taken, Dr Henry replied, dripping with sarcasm: “Well, we could have fired everybody, I suppose.”

The commission also heard that a dispute with the Australian Securities and Investments Commission about investment fees had dragged on for three years after the company took what the regulator had described as a “legalistic” approach.

ASIC became frustrated with NAB and earlier this year wrote to the bank.

“For a significant period of time NAB has suggested various remediation methodologies that ASIC has consistently rejected as unacceptable and the latest proposal retreats even further from what we would expect NAB to be in the interests of customers,” the regulator wrote.

Minutes of a board meeting in May this year show the board “reiterated its frustration over the length of time taken to agree a methodology … to remediate customers”.

It led to an openly hostile exchange between the NAB chair and counsel assisting, Rowena Orr QC.

Dr Henry was unable to detail whether he had pushed management to settle things.

“Dr Henry, why didn’t you say to management at this point ‘enough is enough, this is harming our customers’?” Ms Orr asked.

Dr Henry replied: “Maybe we should have used those words.”

Ms Orr asked whether the bank had done enough to respond to ASIC’s concerns and get the matter settled. “I think so,” Dr Henry replied.

“I’m sorry, is that a yes or a no, Dr Henry?”

“I’ve answered the question the way I choose to answer the question,” he replied.

When asked whether the board should have stepped in earlier, he replied: “I wish we had.”

A frustrated Ms Orr responded: “I’m going to take that as a yes, Dr Henry.”

Ms Orr then questioned Dr Henry about whether NAB and its legal counsel Sharon Cooke’s dealings with ASIC represented “appropriate management of risk-related matters”.

Dr Henry replied that he did and told Ms Orr: “We have been through them [the matters]”.

“No, I’m sorry, I don’t think we have,” Ms Orr said.

“No, you wouldn’t,” Dr Henry replied sharply.

Dr Henry at first said Ms Cooke’s letter to ASIC, which the regulator said adopted an unacceptable position, was appropriate.

But Ms Orr took him up on it and he conferred with her opinion that it “represented a deeply flawed position”.