Royal commission will probe Australia's big four banks

$75m investigation announced as the banks publicly volunteer for an inquiry.

Australia's banks and financial institutions will face a royal commission into alleged misconduct following mounting public pressure and a sudden backflip by the Turnbull government.

The announcement of the $75 million probe came as the chief executives of Commonwealth Bank, NAB, ANZ and Westpac jointly penned a public letter to Treasurer Scott Morrison, where they asked for an inquiry to help them regain public trust.

The banks were reportedly not told a royal commission – the highest form of inquiry on matters of public importance – would be announced this morning.

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Prime Minister Malcolm Turnbull will appoint an independent judicial officer to lead the commission, and will ask that they deliver a final report by 1 Feb 2019.

Investigating allegations of financial misconduct

The royal commission "will be a comprehensive inquiry," began the Prime Minister, at an impromptu press conference in the courtyard of Parliament House.

"We have much to be proud of about our banking system and the experience of the global financial crisis should remind us of that. We have much to be proud of, but also much to take care of. We need to maintain the stability of our financial system," he says.

"Since the financial crisis, however, 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."

The royal commission will consider the conduct of banks, insurers, financial service providers and superannuation funds (other than those that are self-managed). It will also assess if regulators are adequately equipped to identify and address misconduct in financial markets.

"A royal commission will not be able to recommend compensation for individual cases, but it will be able to make recommendations that the government may consider," says the Prime Minister.

Royal commissions are rarely invoked by the Federal government. Only one more is currently underway; a five-year probe into institutional responses to child sexual abuse.

Banks volunteer for less, but it's too late

About the same time the Prime Minister was announcing the royal commission, the chief executives and chairmen of the big four banks were releasing a letter addressed to Treasurer Scott Morrison to the public.

The letter, dated 30 November, called for an inquiry into the banking and finance sector.

"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," the letter said.

It characterised a royal commission as needless.

"Our banks have consistently argued the view that further inquiries into the sector, including a royal commission, are unwarranted.

"They are costly and unnecessary distractions at a time when the finance sector faces significant challenges and disruption from technology and growing global macroeconomic uncertainty."

The banking and finance sector has been working to repair damaged reputations. Commonwealth bank eliminated ATM fees and began restructuring sales commissions, for instance, but the announcements followed allegations of its ATMs being used to launder terrorism transactions.

"We have collectively appeared before, or taken part in, 51 substantial reviews, investigations and inquiries since the global financial crisis," the letter continued, "12 of which are ongoing."