In the end it needed to a letter from the banks themselves to allow Malcolm Turnbull to accept the inevitable and set up a royal commission into the banks — or what the Prime Minister called “misconduct in the financial services industry”. At 8.30 this morning, the big four banks released a joint letter to the Treasurer calling for an inquiry into themselves, arguing:
… 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. It also risks undermining the critical perception that our banks are unquestionably strong … 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.
Nationals backbenchers were ready to deliver a parliamentary inquiry next week and even Deputy PM Barnaby Joyce was leaving open the possibility of a full-scale revolt by the Nationals against the government’s policy. But that, ostensibly, wasn’t enough to convince the PM to surrender — the banks themselves had to give permission for an inquiry. Not that the government was trying to confirm Labor’s claim that the Liberals are in thrall to the banks or anything.
Even so, and despite the headlines about backflips — 24 hours ago the government was still determined to do everything it could to prevent an inquiry — the decision is the less worse option for Turnbull, who no longer faces the nightmare scenario of losing on the floor of the House on the issue and having an inquiry foisted on him. It also removes major political irritant between the government and Nationals MPs that should make things in the joint party room a little calmer when it meets next week.
Treasurer Scott Morrison attempted to gain cover on the backflip by saying the governor of the Reserve Bank and the chair of the Australian Prudential Regulation Authority had advised him of the damage being caused by the speculation — much of which was entirely the product of the government itself and its inability either to control the House of Reps, or its own restive backbenchers.
By 10.30am investors has signalled their verdict: bank shares were down sharply — CBA shares off 2.2%, Westpac 1.7%, ANZ 1.3% and NAB 1.2%. The fact that the CBA’s loss was the largest was an immediate judgement that it has to most to lose from any inquiry with its long history of dudding customers, consumers and regulators (as per the Austrac money-laundering case). The wider market was down more than 50 points, with most of that due to the slump in bank shares.
And while we haven’t seen the terms of reference yet, note the Prime Minister’s use of the term “misconduct in the financial services industry”. The inquiry will almost certainly include an attempt to go after trade unions via industry superannuation funds, despite the constant and significantly better performance by industry super over bank-owned retail funds. The line will be that industry super payments to unions to market funds, and directors’ fees to union-appointed directors (which are a sinister flow of funding to unions if the director passes them onto their union, or typical union venality if the director keeps the fees for themselves instead), are on a level with major banking scandals and require investigation.
The problem is, the commission will be awfully busy: it’s supposed to start in February and only run for 12 months. The political reality that forced the government to embrace the inquiry may well force it to be extended.