Having fought off demands for almost two years, the final straw came on Thursday when the big four banks wrote to the government calling for a “properly constituted inquiry”.

The chairman and CEOs of the Commonwealth, Westpac, National Australia and ANZ banks, in a joint email to Treasurer Scott Morrison, said the political uncertainty surrounding an inquiry was “hurting confidence”.

“The speculation about an inquiry cannot go on,” Turnbull told reporters in Canberra.

“We have got to stop the banks and our financial services sector being used as a political football.”

Cabinet had determined the only way to give all Australians a greater degree of assurance was a royal commission.

But it won’t be an open-ended commission inquiry.

“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,” Turnbull said.

“This should not be a commission that runs forever, costing many hundreds of millions of dollars, as would’ve been the case under some of the proposals.”

Morrison is allocating $75 million for the commission which will investigate the nation’s banks, big and small, wealth managers, superannuation providers, insurance companies.

The government will appoint a distinguished former or serving judicial officer to lead the commission with instructions to deliver a final report by February 1, 2019.

The decision heads off a parliamentary commission of inquiry being sought by Nationals senator Barry O’Sullivan, who has been in discussions all week with Coalition colleagues, Labor and the Greens.

The bill could have been brought to the Senate as early as Thursday.

Turnbull has long fought against a royal commission, saying it would be a waste of money and that his government had taken action against the banks in the interim, such as a one-stop-shop for complaints and an executive accountability regime.

– AAP