The announcement follows a letter earlier this morning penned by the chairmen and chief executives of the four major banks calling on the government to establish an inquiry to end uncertainty and speculation.
“Ongoing speculation and fear-mongering about a banking inquiry or royal commission is disruptive and risks undermining the reputation of Australia’s world-class financial system,” said Mr Turnbull in a joint statement with federal Treasurer Scott Morrison.
"The government has decided to establish this royal commission to further ensure our financial system is working efficiently and effectively."
The inquiry will examine the conduct of “banks, insurers, financial services providers and superannuation funds (not including self-managed superannuation funds),” said the statement.
It will also involve an examination of how well-equipped regulators are in identifying and addressing misconduct, but will not “inquire into other matters such as financial stability or the resilience of our banks”.
“This will be a sensible, efficient and focused inquiry into misconduct and practices falling below community standards and expectations,” the said the statement.
“Most Australians are consumers of banking and financial services, and we all have the right to be treated honestly and fairly by banking and financial services providers.
“Trust in a well-functioning banking and financial services industry promotes financial system stability, growth, efficiency and innovation over the long term.”
The Turnbull government has also released a draft terms of reference document on the royal commission.
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