Investors pushed up bank shares on Tuesday in a sign of relief that the inquiry stopped short of demanding major structural changes, such as new lending rules or forcing the banks to sell their wealth management divisions.
Westpac shares surged 7.4 per cent, their biggest one-day gain since 2009, ANZ Bank soared by 6.5 per cent, Commonwealth Bank jumped 4.7 per cent, and National Australia Bank gained 3.9 per cent.
The greatest pressure fell on NAB and its chief executive Andrew Thorburn, who cut short his long-service leave to declare he was «ashamed» of some of the banking misconduct while defending some of it as «sloppy» rather than dishonest.
The policy gulf on the Hayne commission is turning into a crucial election issue as Mr Shorten calls on Prime Minister Scott Morrison to bring back Parliament for two weeks in March to pass laws to protect consumers.
Mr Shorten asked «who do you trust to keep the banks in line?» and attacked Mr Morrison for voting against the royal commission 26 times, arguing this showed that voters could not rely on the Coalition to act on the findings.
Mr Shorten wrote to Mr Morrison on Tuesday to ask for the extra sitting days in March but a government spokesman said the Prime Minister would not be «lectured» by Labor.
The argument led Labor to outline several changes it would make faster than the government if it wins the election.
While the government wants to end commissions on financial advice from January 2021, Labor would bring this forward to January 2020 or earlier. This would act on «grandfathered» commissions left intact from finance reforms in 2011.
Labor also wants faster action to change the Insurance Contracts Act and Superannuation Industry (Supervision) Act to ban hard sales tactics such as «hawking» products over the phone to unwitting consumers.
It also wants the Parliament to act more quickly to protect consumers from unfair contracts by extending this to the Insurance Contracts Act, a proposal the government also accepts but does not intend to legislate before the election.
The new signals follow Labor’s decision on Monday to adopt the Hayne recommendation on mortgage brokers, which would replace commissions on the value of the home loan with up-front fees to be charged to consumers.
Treasurer Josh Frydenberg cautioned against embracing this finding in full, saying it would hurt the brokers and intensify the power of the major banks.
The government will instead prohibit trailing commissions on new loans to mortgage brokers from July 2020 but will allow up-front commissions on the value of the amount borrowed by home buyers.
In a campaign that could threaten Labor as the election nears, the finance industry has launched a powerful lobbying campaign to push back against the changes, telling Australians to «keep competition alive» by letting brokers keep their commissions.
Mortgage Choice chief executive Susan Mitchell said the Hayne findings could give more «pricing power» to the major banks and lead to higher interest rates for consumers.
Finance Brokers Association of Australia managing director Peter White also warned of higher interest rates because the Hayne recommendations would give the banks more power.
UTS Business School professor Warren Hogan, a former chief economist at ANZ, said the business model for mortgage brokers could become less profitable but this did not mean rates would rise as borrowers would be able to find alternatives themselves.
«I think the claim that the proposed reforms to the mortgage broking industry, which the government has flagged will be implemented gradually, will cause a spike in mortgage interest rates lacks merit,» he said.
«If there is any upward pressure on mortgage rates due to these reforms I believe it will be small and come through the system gradually.»
Finance analyst Martin North, from Digital Finance Analytics, said costs would fall by replacing commissions with flat fees, a positive change because it would remove an incentive to sell higher loans.
«I can’t make an argument as to why mortgage rates would go up if consumers paid mortgage brokers for their advice rather than the banks paying them,» Mr North said.
«So I think the idea that mortgage rates would go up is scaremongering.»
A Labor spokesman said Justice Hayne had already dealt with the «unintended consequence» claim being put by some.
David Crowe is Chief Political Correspondent of the Sydney Morning Herald and The Age.