We have been given an extraordinary document.

Kenneth Hayne, the head of the banking royal commission, delivered his interim report on the first four rounds of hearings on Friday.

Its significance cannot be overstated.

It tears into key aspects of the regime that has allowed Australia’s big four banks to become ruthless oligopolists, in which they trample consumers with impunity and thumb their noses at regulators.

Hayne’s criticism of the system is so fundamental the Morrison government and Labor opposition will have to confront it if they want us to believe they truly understand what has happened to our financial system in the two decades since the 1997 Wallis report.

It is a wholesale rejection of the status quo.

“To understand why the banks could, and did, act as they did, it is necessary to look at some fundamental considerations,” Hayne has written.

“Banks have a special position in the economy. They are licensed under commonwealth statute … To carry on any banking business in Australia without authority is an indictable offence. Others can therefore enter the market only with permission.

“Competition within the banking industry is weak. Barriers to entering the industry are high. To participate in the economy, to participate in everyday life, Australians need a bank account. But they are reluctant to change banks. Each of the four largest banks is a powerful player in the market.”

That sets the scene.

But Hayne insists there are other considerations that arise from the very nature of banking, and he asks us to think deeply about them.

“Banks’ dealings with customers seek to minimise risk to the bank. The bank fixes its risk appetite. It decides to whom it will lend and on what terms. It decides whether security should be provided and what form and value it should take,” he writes.

“Hence, banks have only as much ‘skin in the game’ in their dealings with customers as the bank chooses. And there is always a striking asymmetry of power and information between bank and customer that favours the bank.

“Important deterrents to misconduct are, therefore, missing from the banking industry.”

He then goes further.

Competitive pressures are slight, he says, and the promise by government that it will not allow any bank to fail has created a perverse outcome.

“Like any commercial enterprise, banks seek to maximise profit. Having survived the global financial crisis, and being prudentially regulated against failure, annual profit has become the defining measure of success of Australian banks,” he writes.

“That measure has been justified as being in the interests of shareholders and, because superannuation funds hold bank shares, as being in the interests of all Australians.

“But there being little threat of failure of the enterprise, and there being little competitive pressure, pursuit of profit has trumped consideration of how the profit is made.

“The banks have gone to the edge of what is permitted, and too often beyond that limit, in pursuit of profit. And they have gone beyond the limit because they can and because they profit from the misconduct this is described in this report.”

He continues.

“Risk to reputation was ignored. Discovery of misconduct was ‘managed’ by words of apology and promises to do better. But little more was done than utter the apology and make the promise.

“More often than not, remediation programs were eventually set up but usually after protracted negotiation. Profit remained the informing value.

“The law sets the bounds of permissible behaviour. If competitive pressures are absent, if there is little or no threat of enterprise failure, and if banks can and do mitigate the consequences of customers failing to meet obligations, only the regulator can mark and enforce those bounds.

“But neither the Australian Securities and Investments Commission (Asic) nor Apra has done that in a way that has prevented the conduct described in this report. Why not?”

He then lays out some reasons why Apra and Asic have failed as regulators.

“Apra’s chief focus is on governance and risk culture. In performing and exercising its functions and powers it is obliged ‘to balance the objectives of financial safety and efficiency, competition, contestability and competitive neutrality and, in balancing these objectives, is to promote financial system stability in Australia’,” he writes.

“Apra’s central task is to prevent failure of the financial system and to prevent failure of entities within the system. Asic’s focus is conduct regulation.”

You can see where this is heading.

The architecture of the system itself – government-backed banks, operating in an oligopolistic market, with ineffective regulators and regulation – has led to the situation where we had to have a royal commission into appalling bank behaviour.

An inquiry this forensic, this detailed, produces a story that only ends one way.

The era of light-on regulation is over.