The banking regulator said it launched an inquiry into the Commonwealth Bank's culture and governance as a "circuit breaker" that was needed to repair the bank's "badly damaged" reputation.
Australian Prudential Regulation Authority chairman Wayne Byres on Wednesday said its inquiry into what lies at the heart of CBA's run of scandals was kicked off by APRA because the bank would have struggled to repair its reputation on its own
Mr Byres also defended the appointment of his predecessor John Laker to sit on the inquiry panel, against the suggestion from Labor MP Matt Keogh that Mr Laker could face a conflict of interest, as a former supervisor of CBA when alleged wrongdoing occurred.
CBA was last month accused of breaking anti-money laundering laws more than 53,000 times, and Mr Byres on Wednesday set out new details on the rationale for the inquiry APRA announced in response late last month.
"The objective behind what we proposed, and set up in the end, was to give a little bit more transparency, to provide something of a circuit breaker, and give a bit more visibility to the broader public about what are the issues that are at the heart of these incidents that have occurred," he said at a hearing of the House Economics Committee in Canberra.
Mr Byres said allegations against CBA had had a "negligible" impact on the bank's prudential health. However, the regulator's over-arching concern was to give the public a transparent view of how the bank was reacting to a run of problems. Unlike most of APRA's activities involving specific banks, the CBA report will be made public.
Mr Byres cited four examples of CBA's woes in recent years: its involvement with failed advisor Storm Financial; failings in its financial advice arm; use of outdated definitions in its life insurance business; and last month's allegations from Austrac of breaches of anti-money laundering rules.
"The collective nature of those was the issue that triggered us to think we need to do something different here," he said.
Asked why APRA needed to help repair CBA's reputation, Mr Byres said: "We sit here with the largest bank in the country with its reputation badly damaged. That's unhealthy for the bank, that's unhealthy for the banking system, and it's actually unhealthy for the country and the broader community that the bank finds itself in this situation."
Mr Byres last week announced the inquiry into CBA would be carried out by Mr Laker, company director Jillian Broadbent, and former head of the Australian Competition and Consumer Commission Graeme Samuel
Under questioning from Mr Keogh, Mr Byres defended the appointment of Mr Laker, saying: "If issues are identified, I have no doubt as to John's integrity, those issues will be called out."
Mr Byres also rejected Mr Keogh's suggestion that Ms Broadbent may have a conflict because she is the chair of Swiss Re Life, which would do business with insurance rivals of CBA.
Mr Byres was also questioned by committee chairman David Coleman over whether banks had been "opportunistic" in using APRA's cap on new interest-only lending as an excuse to raise interest rates and boost profits.
Mr Byres appeared unconvinced by the suggestion, but said he would leave this issue to the competition watchdog, which is conducting an inquiry into banks' mortgage pricing.
Mr Coleman said: "I certainly think this committee would be very concerned if bank executives were making misleading statements about interest rates movements."