Whiplash follows a letter from the banks

It may be one of the quickest backflips ever but as the terms of reference reveal, the banks weren’t caught flatfooted.

Piggy banks with the logos of the big four banks.

If only you could get a loan approved so quickly.

From the shock at 8.30am this morning of the banks releasing a statement calling for a commission of inquiry, to the Prime Minister’s endorsement of said call half an hour later, this has to be one of the quickest and most thorough about-faces in recent political history.

The government even had draft terms of reference ready to go.

And that may say a lot about who is driving this commission process.

After years of opposing calls from within its own ranks, consumer advocates, Labor and the Greens, the government has decided that, actually, they should have a commission.

And what’s changed? The banks’ attitude. In writing a letter to Treasurer Scott Morrison calling for the government to establish an inquiry they have given their permission to hold the inquiry.

To be fair, they have been softening us up. Westpac chairman Lindsay Maxsted’s comments yesterday that he was opposed to a royal commission but saw it is as inevitable was the latest in a series of signals that they were set to capitulate.

Two weeks ago The Australian reported that the banks had set up teams of lawyers to prepare for the possibility of a royal commission.

So, while it might have the appearance of a sudden about-face, there’s enough to suggest that the banks have been working behind the scenes to get in front of the process.

That’s suggested in the terms of reference, too. They are narrowly focused on consumer grievances about past behaviour.

It includes: “the nature, extent and effect of misconduct by a financial services entity (including by its directors, officers or employees, or by anyone acting on its behalf); b) any conduct, practices, behaviour or business activity by a financial services entity that falls below community standards and expectations;

As Malcolm Turnbull said, it will be a “responsible but comprehensive” inquiry into the whole finance sector including banks, insurance, wealth managers and superannuation.

“This will not be an open-ended commission, it will not put capitalism on trial, as some people in the parliament prefer.”

Indeed. The terms specifically exclude a wider look at the broad financial services industry. The commission is not required to inquire into, and may not make recommendations in relation to, macro-prudential policy, regulation or oversight.

Its definitions say macro-prudential policy and regulation relates to the structure, role and purpose of financial regulators, that is concerned with containing systemic risk, which can have widespread implications for the financial system as a whole, beyond simply the banking system.

That would seem to exclude the role of the RBA and the Australian Prudential Regulation Authority, but not the Australian Securities and Investments Commission, which is left to police the conduct issues that are likely to dominate the inquiry.

Somewhat curiously, the terms also include a specific reference for superannuation which focused on an issue that the government has been talking a lot about recently. The commission will inquire into “the use by a financial services entity of superannuation members’ retirement savings for any purpose that does not meet community standards and expectations or is otherwise not in the best interest of members”.

That sounds a lot like the rhetoric that has been used by the government to prosecute its case for changing the governance arrangements of member-owned superannuation funds. Ministers have previously linked the standard practice of union representatives on the fund boards paying their directors fees back to the unions as a prime example of polticial donations.

As the saying goes, never commission an inquiry unless you know the outcome first. In this case, the banks seem to have got an inquiry that they haven’t exactly wished for, but can probably live with.