The Turnbull government has announced it will hold a royal commission into the banking sector, in a major policy backflip.
The decision came after the big banks wrote to the government saying an inquiry was necessary to end business and economic uncertainty.
Prime Minister Malcolm Turnbull announced the royal commission in a press conference in Canberra on Thursday morning.
“The chief executives and chairman of the big four banks have written to us, asking the government to step in, end the uncertainty and ensure an orderly process that addresses the concerns,” the PM said.
“Cabinet has met this morning and has determined that the only way we can give all Australians a greater degree of assurance about the financial system is through a royal commission into misconduct in the financial services industry.”
He said the royal commission would last for 12 months, and would report to government in February 2019. It would cover not just the banks, but also fund managers, superannuation funds and insurance companies.
The decision to hold a royal commission came within hours of a letter from the big banks addressed to Treasurer Scott Morrison, in which they called for the government to launch an inquiry.
“We are writing to you as the leader’s of Australia’s major banks,” the letter read.
“In light of the latest wave of speculation about a parliamentary commission of inquiry into the banking and finance sector, we believe it is now imperative for the Australian Government to act decisively to deliver certainty to Australia’s financial services sector, our customers and the community.”
It went on: “We now ask you and your government to act to ensure a properly constituted inquiry into the financial services sector is established to put an end to the uncertainty and restore trust, respect and confidence.
The government’s bombshell announcement followed a major threat from Nationals MPs to cross the floor and back a bill that would have established a banking ‘commission of inquiry’ behind the government’s back – a move that would have significantly undermined the PM’s authority.
In his speech, Mr Turnbull said the decision to call a royal commission was based on a desire to put an end to uncertainty that was coming from this threat.
“The banks … do not believe an inquiry is necessary, but they have raised – and you may have seen their letter to us – serious concerns that the ongoing uncertainty is undermining the financial system,” he said.
“Now the speculation about an inquiry cannot go on. It’s moving into dangerous territory, with some of the proposals being put 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 to 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.”
He said the decision was “a regrettable but necessary action”.