Turnbull will haul banks to parliament to explain rates

(Photo by Ryan Pierse/Getty Images)

Australia’s major banks will be called before a committee of the federal parliament to explain why they haven’t passed on the full official interest rate cuts to home loans.

Prime minister Malcolm Turnbull announced the move to call the banks before the House of Representatives economics committee at a media briefing today.

“There is no commercial basis for them (not to pass one the rate) other than for them to improve their profitability,” he said. “They had every cause to pass on the full extent of that rate cut.”

The four major banks will be called to appear regularly before the committee each year.

The prime minister says he believes this will bring about a cultural shift among the banks.

“What we have here with the banks, in our view, is a need for cultural change and ongoing accountability,” he says.

Turnbull and treasurer Scott Morrison say there is no basis for not passing on this week’s cut in official cash rates by 0.25 percentage points to a record low of 1.5%.

The banks passed on only half the cut.

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.

However, today Turnbull says the parliamentary committee had more powers than a royal commission and would be less expensive.

Morrison had spoken to all the banks and they had agreed to appear before the committee.

“What this will do is create a regular and permanent method of accountability and transparency for the banks,” says Turnbull.

“What we are setting in place here is ongoing, permanent cultural change and change that will .. ensure (banks) are accountable.

“The banks will know that if they decide not to pass on a rate cut from the central bank that they will have to front up to a House of Representatives Committee and explain that and justify their actions.

“Let me tell you, that will drive some cultural change at the banks”

The banks will be required to appear in parliament at least once a year to answer questions on their operations, not just what they have done with interest rates.

NOW LISTEN: PODCAST: With Shane Oliver on the RBA, the banks, and the big questions for the global economy

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.