Australian Prime Minister Explains Why He Vetoed UN Bidder

Mr Turnbull says the reputational damage to the banks of not turning up to an inquiry hearing would be “gigantic”. “They are built on a foundation of trust and they have to earn that trust through being open and accountable at all times”.

“When banks decide not to pass on the full extent of an interest rate cut from the Reserve Bank they will know that they’re going to have to explain themselves in the full glare of a public, parliamentary committee room in Canberra”, Mr Turnbull told 3AW radio on Friday.

“What we will do now is institutionalise regular accountability and transparency”.

The government has been under pressure to launch a royal commission into the banks after a series of scandals over the activities of wealth managers, insurance payouts and alleged fixing of the bank bill swap rate.

The banks cited rising funding costs in an uncertain economic environment and regulatory pressure that has forced them to raise deposit rates by as much as 75 basis points. “They must provide a full account of why they have not done so”.

He said the new requirement “will become, if you are a bank chief executive appearing before the House economics committee, part of your regular annual schedule”. “So there’s been an appropriate assessment and consideration of how this process would work”.

“The Federal Government is entitled to call the banks before a parliamentary committee, however no other businesses are required to justify their commercial pricing decisions in this way”, he said.

“What we’re setting in place here is ongoing, permanent cultural change and change that will make the banks ensure that they are accountable”.

He said that in making interest rate decisions “banks have to balance the needs of borrowers and savers, and shareholders in banks, most of whom are also ordinary Australians”.

Nick Economou, a Melbourne-based professor at Monash University’s School of Political and Social Inquiry, said Turnbull had been hurt during the election campaign by opposition claims he wasn’t being tough enough on the banks.

“The prime minister is seeking to head off criticism, even though this move looks like he’s hitting the banks with a feather”, Economou said.

Mr Turnbull said Labor had been demanding a commission since April but had never released specific terms of reference.