Video: PM announces a royal commission into the banking sector (Photo - ABC News: Jed Cooper) (ABC News)
Malcolm Turnbull has announced a royal commission into the banking sector, after Australia's big four banks wrote to the Treasurer asking for an inquiry to restore public faith in the financial system.
A letter signed by the chairpersons and chief executives of ANZ, Commonwealth, NAB and Westpac argued that even though the sector had long campaigned against it, such a measure was now in the national interest.
"Our banks have consistently argued the view that further inquiries into the sector, including a royal commission, are unwarranted," the letter said.
"However, it is now in the national interest for the political uncertainty to end."
Shortly after the letter was released, the Prime Minister announced the royal commission, saying that it was the only way to "give all Australians a greater degree of assurance" about the banking sector.
"Since the financial crisis, there have been examples of misconduct by financial institutions. Some of them extremely serious. And that's demanded a response from the institutions themselves and from government," Mr Turnbull said.
"The only way we can give all Australians a greater degree of assurance is a royal commission into misconduct into the financial services industry.
"It will cover the nation's banks, big and small, wealth managers, superannuation providers, insurance companies. It will be a comprehensive inquiry."
The royal commission will have 12 months to complete its inquiries, with a final report expected to be delivered by February 1, 2019.
Mr Turnbull said it would investigate "how financial institutions had dealt with cases of misconduct in the past, and whether those examples expose issues in terms of the cultural and governance issues in terms of the regulation and supervision of the industry".
"This will not be an open-ended commission, it will not put capitalism on trial," he said.
Royal commission heads off Nationals move to force inquiry
The Government's announcement has headed off a move in the Senate where the junior Coalition partner, the Nationals, were prepared to combine with the Greens, Labor and other crossbenchers to force an inquiry to be held.
Nationals senator Barry O'Sullivan has been working with other parties and was prepared to pass legislation for an inquiry that, until today, the Government has been strongly resisting.
Mr Turnbull's announcement means the Government avoids the embarrassment of its own side of politics compelling it to hold an inquiry.
But it is politically embarrassing for Mr Turnbull to have been forced into walking away from his previous refusal to hold an inquiry.
The Federal Opposition has been pressuring the Government to hold a royal commission since April last year, when it announced that a Labor government would call one.
Labor has argued for more than 18 months that a royal commission would make the sector stronger.
Treasurer Scott Morrison said the royal commission did not undermine the strength of Australian banks.
"Australia's banks are unquestionably strong, nothing that we have announced today changes this or gives any reason to question this, on the part of the Government," Mr Morrison said.
"This is an important message for markets and the international financial community, it does not question the robust nature of our prudential system."
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