Turnbull government caves in on banking royal commission

THE Turnbull government has caved in to demands to hold a royal commission into the financial services industry after the country’s major banks took the unprecedented step of asking for an inquiry.

BANKING shares have tumbled as investors take fright at the announcement of the royal commission into the banking sector.

The Turnbull government today caved in to demands to hold a royal commission into the financial services industry after the country’s major banks took the unprecedented step of asking for an inquiry.

Prime Minister Malcolm Turnbull said speculation about an inquiry was damaging the economy, with the government likely to have been left embarrassed by rogue Nationals MPs who threatened to cross the floor and vote with Labor on the issue.

“The speculation about an inquiry cannot go on,” Mr Turnbull said.

Treasurer Scott Morrison and PM Malcolm Turnbull at Parliament House in Canberra. Picture Kym Smith

“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.”

Following the announcement the financial sector on the ASX dropped almost two per cent, led by the big four retail banks and Macquarie, after Commonwealth Bank, Westpac, National Australia Bank and ANZ co-signed a letter accepting the need for a commission.

“While Westpac has consistently argued and continues to believe that a royal commission is not necessary, in the current circumstances it is now more important that the financial sector can continue to operate effectively and with certainty,” Westpac chief executive Brian Hartze said in a separate statement.

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The proposal was taken to Cabinet this morning, with the government announcing any commission would have a one-year timeline, reporting in February 2019, and would not be able to recommend compensation for individual cases.

“It will not put capitalism on trial, as some people in the parliament prefer, and we’ll give it a reporting date of 12 months,” Mr Turnbull said.

“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.”

Mr Morrison is allocating $75 million for the commission which will investigate the nation’s banks, big and small, wealth managers, superannuation providers, insurance companies.

The government will appoint a distinguished former or serving judicial officer to lead the commission with instructions to deliver a final report by February 1, 2019.

The decision heads off a parliamentary commission of inquiry being sought by Nationals senator Barry O’Sullivan, who has been in discussions all week with coalition colleagues, Labor and the Greens.

The bill could have been brought to the Senate as early as today.

The Daily Telegraph revealed last week that Cabinet had considered reversing the government’s position after it became clear several Coalition MPs were likely to cross the floor on the issue.

The government’s move comes as the chief executives of the country’s largest four banks — ANZ, Commonwealth, NAB and Westpac — wrote to Treasurer Scott Morrison to request an inquiry.

“Our banks have consistently argued the view that further inquiries into the sector, including a Royal Commission, are unwarranted,” they wrote.

“However, it is now in the national interest for the political uncertainty to end.

“It is hurting confidence in our financial services system, including in offshore markets, and has diminished trust and respect for our sector and people.

The Commonwealth Bank was among the banks to call for the royal commission

“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.”

Mr Turnbull’s move comes as Nationals senator Barry O’Sullivan was poised to introduce legislation into the Senate to establish a commission of inquiry, which operates in a similar way to a royal commission.

Senator O’Sullivan reached an agreement with the Greens yesterday, guaranteeing their support for the bill which would have likely passed the House of Representatives with the backing of a number of Nationals MPs including George Christensen and Llew O’Brien.

But the Nationals would have required the support of the government to fund the commission, and where hopeful the threat of an embarrassing loss would force Mr Turnbull to agree to hold an inquiry.

Mr Turnbull said a commission had not been called earlier because it may have led to “legitimate calls” to delay other new measures which the government introduced to regulate the embattled sector.