Prime Minister Malcolm Turnbull, with Treasurer Scott Morrison, said the commission would not be open-ended and would have a reporting date of 12 months. Credit:Alex Ellinghausen The royal commission will run for 12 months with a final report due by February 1, 2019. The CEOs and chairmen of the Commonwealth Bank, Westpac, National Australia Bank and ANZ Banking Group requested a "properly constituted inquiry" into the sector in an email sent on Thursday to Treasurer Scott Morrison. Mounting pressure It came amid mounting pressure on the coalition government from Labor, some rebel Nationals MPs and the Greens for the establishment of a royal commission into the banks following a series of life insurance and financial planning scandals.

The banks have consistently argued that further inquiries into the sector, including a royal commission, were "unwarranted" as they were costly and unnecessary distractions at a time when the sector faced significant challenges. The CEOs of the Commonwealth, Westpac, National Australia and ANZ banks made the request in an email sent on Thursday to Treasurer Scott Morrison. Credit:Paul Jeffers But in the email to Mr Morrison, they said in light of recent speculation, it was now "imperative" for the government to act decisively to deliver certainty to the sector, bank customers and the community. "It is now in the national interest for the political uncertainty to end," the email says. "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." Bank shares dive It is now in the national interest for the political uncertainty to end. Big four banks Shares in the major banks dived when the sharemarket opened, with CBA shares down 2.6 per cent, Westpac 2.06 per cent, ANZ 1.6 per cent and NAB 1.7 per cent mid-morning. Mr Morrison said the decision to launch a royal commission was "regrettable but necessary action to take control" and overcome the "damage" to the financial sector that had been done by repeated calls for an inquiry.

"We must continue to get on with it and I call on the parliament to get on with it and support these measures," Mr Morrison said. Mr Turnbull had repeatedly denied any need for a royal commission but Nationals senator Barry O'Sullivan believed he had the numbers to go ahead without cabinet approval in a move that could have destabilised the government. The Greens threw their weight behind a commission of inquiry on Wednesday after securing last-minute amendments from Senator O'Sullivan. 'On the side of the banks' "A government's policy remains the same until it is changed," Mr Turnbull said when asked if this was a backflip for the government.

"The political environment has created a sense of inevitability about an inquiry ... We have to act in the national interest, protecting Australia's economic future." Opposition Leader Bill Shorten said Mr Turnbull had spent 601 days fighting Labor's call for a royal commission into the banking and financial sector. "It says everything about Turnbull's values and priorities that he only agreed to Labor's royal commission when the banks told him he had to," he said in a statement. "He ignored the pleas of families and small businesses, he rejected the words of whistle-blowers. But when the big banks wrote him a letter, he folded the same day." "Turnbull has always been - and always will be - on the side of the banks."

The commission will cost $75 million - about $25 million less than the same-sex marriage postal survey, but $20 million more than the commission proposed by Labor. The terms of reference are much broader and less specific than those proposed by the O'Sullivan bill and backed by the Greens. The royal commission will now examine all cases of "misconduct", including breaches of professional standards and not just "illegal and unethical" practices, across the insurance, banking and superannuation industries. It will focus on "any conduct, practices, behaviour or business activity that falls below community standards" and "the use of superannuation that is otherwise not in the best interest of members".

The government's terms of reference do not specify an investigation into the pay packets of banking executives or protections for whistleblowers of financial misconduct, but they are sufficiently broad to include these if they wish. Union bosses could also be forced to take the stand, with industry super funds run by union executives under the spotlight over how they spend their members superannuation funds. The commission does not have the power to provide victims of misconduct an avenue for compensation, putting at least a year-long delay on reparations for affected businesses or consumers. "I want to make this very clear, a royal commission will not be able to recommend comprehension for individual cases, but it will be able to make recommendations the government consider in the interests of making our financial system the most competitive, transparent and accountable in the world," Mr Turnbull said. 'It will not put capitalism on trial'

The terms of reference limit the inquiry to a year and give it the power to ignore anything that it wants to that would otherwise be within its scope. The government urged the commission to give priority to matters that have a greater potential for harm "if not addressed expeditiously". "This will not be an open-ended commission, it will not put capitalism on trial, as some people in the parliament prefer, and we'll give it a reporting date of 12 months," Mr Turnbull said. But the Prime Minister immediately backtracked from that timetable on Thursday morning. "It will be set up on the basis it reports within a year, but as you know, and again, being realistic about this, royal commissions take longer than originally planned," he said.

Loading The banks said the inquiry should be led by an eminent and respected ex judicial officer; its terms of reference should be "thoughtfully drafted and free of political influence"; its scope should cover the community's core concerns; report back in a timely manner; and it must replace other ongoing inquiries. The email was signed by ANZ chairman David Gonski and chief executive Shayne Elliott, CBA chairman Catherine Livingstone and CEO Ian Narev, NAB chairman Ken Henry and CEO Andrew Thorburn, and Westpac chairman Lindsay Maxsted and CEO Brian Hartzer.