Banks royal commission: cabinet’s rush to stop O’Sullivan’s ‘daft’ bill

Kelly O’Dwyer was horrified at the private member’s bill being proposed by Nat Barry O’Sullivan for a banking inquiry.

Financial Services Minister Kelly O'Dywer. Picture: Hollie Adams

At 10am on Wednesday, Kelly O’Dwyer wrapped up a meeting in her Canberra office with renegade Nationals senator Barry O’Sullivan as he prepared to introduce a final draft of a private member’s bill for a banking commission of inquiry.

The Financial Services Minister was reportedly horrified at what was being proposed. O’Sullivan appeared to have lost control of a bill that effectively would give the Greens and Labor veto to dictate terms of reference and even appoint who would run an inquiry.

Sources close to the drafting of the O’Sullivan bill say that, over the past week, “people were simply walking into the Queensland senator’s office with every daft idea they could think of and he was writing them into it”.

Disgraced Labor senator Sam Dastyari, who was leading negotiations on behalf of the opposition, had been one of them.

O’Dwyer told her Coalition colleague that the government would need more time to consider his bill and asked O’Sullivan to hold off on his threat to introduce it to the Senate that day. It was a deliberate and successful delaying tactic as the government switched from inertia to panic, having realised a political crisis largely of its own making was imminent. “She effectively stonewalled him,” said a source close to the negotiations.

When O’Dwyer left the meeting, she walked across the corridor to Scott Morrison’s office.

Nationals MP Llew O’Brien, who had publicly declared he would cross the floor in the lower house to support the bill, was sitting with the Treasurer. It is understood that, when asked what he was seeking by effectively holding a gun to the head of his own government, O’Brien said he wanted to stop banks sacking workers in his regional Queensland electorate of Wide Bay.

“You will just ensure they sack more,” Morrison is believed to have retorted.

Morrison and O’Dwyer came to the conclusion that neither Nat­ionals MP was for turning but nor did they appreciate the consequences if their bill succeeded, which was becoming increasingly likely. Malcolm Turnbull, who was in Gosford with Liberal MP Lucy Wicks to inspect a new tax office building, was in constant contact with Morrison, O’Dwyer and Fin­ance Minister Mathias Cormann. “It was manic,” a source close the negotiations said. “There were that many meetings and phone calls we lost count.”

No final decision had been made on how to respond to both the impending political disaster awaiting the government and the increasing sense of panic coming from the banks. Only a close circle of cabinet ministers knew that O’Dwyer’s office had been working for the past week on a contingency plan, which included the option of the government calling its own royal commission into the banks and financial services.

When the Prime Minister boarded his plane in Sydney that night to return to Canberra, events had shifted dramatically in the 24 hours since he had publicly ­reaffirmed that he remained ­opposed to a royal commission.

Morrison had been reporting back that the conversations he had held over several days with the chairs of the big four banks were leading to an inevitable conclusion. They were demanding the government do something to stem the crisis and at least provide some certainty. None wanted a royal commission but the clear message was something needed to be done.

O’Sullivan still had no idea that Turnbull was preparing to pull the rug out from under him and announce the following morning that the government would initiate a royal commission. Turnbull had been blunt with O’Sullivan in several phone calls over the past few days. He had told him that he had no comprehension of what he had unleashed and no idea of what he wanted.

The tenor of the conversation was that O’Sullivan had lost control of his bill and that the consequence would be that the Senate, controlled by Labor, the Greens and the crossbench, would end up being able to choose the commissioner. This was a disaster that O’Sullivan didn’t understand.

O’Sullivan’s recollection is of a gentler tone. “He understood mine and my colleagues’ positions, where we thought that the measures proposed by the government were never going to expose the cultural behaviour of the banks and as such that’s where our opinions differed,” he said.

“But there’s no question he was confronted with a number of members of parliament both here and in the house who were clearly resolved to do this. And I’m sure that if that didn’t play out in his mind, it certainly played out in the minds of the banks.”

By late Wednesday, the final course of action that Turnbull, Morrison, O’Dwyer and Cormann would take had crystallised.

After the close of financial markets, Morrison had been given a copy of the letter the bank chiefs intended to send out the following morning. It was dire. The banks were conceding an inquiry was necessary because of the damage being caused by the “political uncertainty”. This threatened to turn on its head the political dynamic and leave Turnbull stranded.

It came as no surprise to the Treasurer, who had been in discussion with the banks for the past week over a separate issue. Those discussions had increasingly turned to anxiety over the political storm in Canberra and the inevit­ability that some form of inquisition was coming their way.

The Treasurer then called Reserve Bank governor Philip Lowe and Australian Prudential Regulation Authority chairman Wayne Byers. Morrison told them “things have changed”. The two regu­lators agreed something had to be done to inject certainty. There would be economic consequences if it wasn’t resolved. Morrison told them what he was proposing. Both men agreed and told Morrison that the government “had to do what it had to do”. While “regrettable”, it was also “necessary”.

Meanwhile Turnbull had called Attorney-General George Brandis — who as first lawmaker would have portfolio responsibility for a royal commission — and updated him on developments.

Momentum for a royal commission or parliamentary commission of inquiry had become almost irreversible on Thursday last week when O’Sullivan released his first draft of his proposed motion. That day, Westpac chairman Lindsay Maxsted had told The Australian’s Competitive Advantage Forum that he and his NAB counterpart Ken Henry were due to meet Morrison that afternoon over a “narrow piece of the reform agenda”. The Australian revealed the item for discussion was a proposal to resolve legacy cases involving past disputes between banks and their customers.

CBA’s Catherine Livingstone and ANZ’s David Gonski met the Treasurer the next day.

In principle, the banks supported the idea of a tribunal, which Turnbull and Morrison wanted to use as a bargaining chip to convince the Nationals to abandon their threat to cross the floor and set up a formal inquiry. But as the talks progressed, it became clear to the banks that they were pawns in a much bigger political game and, unless things changed, they would continue to get kicked around at Canberra’s leisure.

One banker said the proposed tribunal, to be set up under the commonwealth’s vast administrative powers, was light on governance and had few features to recommend it. “The thinking was we’d actually be better off with a royal commission with sensible terms of reference, rather than having to push back on the next wacky idea,” the source said.

Another banker said a royal commission called by a Coalition government represented the best of three bad options, the other two being a royal commission called by a Labor government, and an ­omnibus parliamentary commission of inquiry with input from ­disgruntled Nationals and the Greens, among others.

The bank chairmen agreed to talk to see whether there was common ground, with the chief executives talking separately. They agreed by early evening on Wednesday it was time to lance the boil. That way, they could take the initiative and, it was hoped, get a properly constituted inquiry with thoughtfully drafted terms of reference free of political influence.

The letter signed by the four bank chairmen and four chief executives was sent to Canberra late on Wednesday indicating it would be lodged with the Australian Sec­urities Exchange the next morning at 8.30 — the same time a meeting of cabinet had been convened to sign off on the royal commission and its terms of reference.

At 9am, Turnbull and Morrison appeared in the Prime Minister’s courtyard for a press conference to announce the royal commission.

Within minutes, ANZ chief executive Shayne Elliott was tweeting to his 7000 followers from Auckland that he was with the group board as well as the bank’s New Zealand directors.

“(We’re) reviewing our current innovation pipeline,” he said. ­“Exciting, customer-driven and groundbreaking. Coming to ­customers soon …”

Elliott was clearly trying to convey the impression it was business as usual for the banks.

Additional reporting: Joe Kelly