The banking sector in Australia consists of a number of banks licensed to carry
on banking business under the Banking Act 1959, foreign banks licensed to
operate through a branch in Australia, and Australian-incorporated foreign bank
subsidiaries. The banking system is liquid, competitive and well developed.
For the 10 years ended mid-2013, the Commonwealth Bank was ranked first in
Bloomberg Riskless Return Ranking a risk-adjusted 18%. Westpac Bank was in
fourth place with 11% and ANZ Bank was in seventh place with 8.7%.
History The first bank to be established in
Australia was the Bank of New South Wales, which was established in Sydney
in 1817, with Edward Smith Hall as its cashier and secretary. During the 19th
and early 20th century, the Bank of New South Wales opened branches throughout
Australia and Oceania: at Moreton Bay in 1850, then in Victoria, New Zealand,
South Australia, Western Australia, Fiji, Papua New Guinea and Tasmania.
In 1835 a London-based bank called the Bank of Australasia was formed that
would eventually become the ANZ Bank. In 1951, it merged with the Union Bank of
Australia, another London-based bank, which had been formed in 1837. In 1970,
it merged with the English, Scottish and Australian Bank Limited, another
London-based bank, formed in 1852, in what was then the largest merger in
Australian banking history, to form the Australia and New Zealand Banking Group
Limited. A speculative boom in the Australian
property market in 1880 led to the Australian banking crisis of 1893. This
was in an environment where little government control or regulation of
banks had been established and led to the failure of 11 commercial banks.
The Commonwealth Bank was established in 1911 by the federal government and by
1913 had branches in all six states. In 1912, it took over the state savings
bank in Tasmania and did the same in 1920 with the state savings bank in
Queensland. As with many other countries, the Great Depression of the
1930s brought a string of bank failures. In 1931, Commonwealth Bank took over two
faltering state savings banks: the Government Savings Bank of New South
Wales and the State Savings Bank of Western Australia. In 1991, it also took
over the failing State Bank of Victoria. From the end of the Great Depression
banking in Australia became tightly regulated. Until the 1980s, it was
virtually impossible for a foreign bank to establish branches in Australia;
consequently Australia had very few banks when compared with such places as
the United States or Hong Kong. Moreover, banks in Australia were
classified into two distinct categories, known as savings banks and trading
banks. Savings banks paid virtually no interest to their depositors and their
lending activities were restricted to providing mortgages. Many of these
savings banks were owned by state governments. Trading banks were
essentially merchant banks, which did not provide services to the general
public. Because of these and numerous other regulatory restrictions, other
forms of non-bank financial institutions flourished in Australia, such as
building societies and credit unions. These were subjected to less stringent
regulations, could provide and charge higher interest rates, but were
restricted in the range of services they could offer. Above all, they were not
allowed to call themselves "banks". From 1920, the Commonwealth Bank
performed some central bank functions, which were greatly expanded during World
War II. This arrangement caused some discomfort for the other banks, and as a
result the central bank functions were transferred to the newly created Reserve
Bank of Australia on 14 January 1960. The banking industry was slowly
deregulated. In the mid-1960s, the distinction between trading and savings
banks was removed and all banks were allowed to operate in the money market,
and banks were allowed to set their own interest rates.
From the 1970s, banks have sought to reduce operating costs by adopting new
technologies. The use of the Bank State Branch identifier was introduced in the
early 1970s with the introduction of MICR on cheques to mechanise the process
of data capture by the banks as well as for mechanical sorting and bundling of
the physical cheques for forwarding to the payer bank branch for final cheque
clearance. Since then, BSBs have been used in electronic transactions. The
rollout of Automated teller machines commenced in 1969.
Foreign exchange controls were abolished and the Australian dollar was permitted
to float from December 1983. The boom and bust of the 1980s was another
turbulent time for banks, with some establishing leading market positions,
and others being absorbed by the larger banks. The Australian government's
direct ownership of banks ceased with the full privatisation of the
Commonwealth Bank between 1991 and 1996. There was also increased competition
from non-bank lenders, such as providers of securitised home loans. Following the
Wallis Committee a Report, in 1998 the oversight of the banks was transferred
from the RBA to the Australian Prudential Regulation Authority and the
Payments System Board was created, which would attempt to maintain the safety and
performance of the payments system. At the time, consumer credit in
Australia was primarily loaned in the form of installment sales credit. The
arrival of hundreds of thousands of readily employable migrant workers under
the post-war immigration scheme, coupled with intense competition amongst
lenders, discouraged proper investigation into buyers. Concerns
about the possibly inflationary impact of lending created the first finance
companies in Australia. Financial institutions
= Four pillars = Currently, the Australian banking sector
is dominated by four major banks: Australia and New Zealand Banking Group,
Commonwealth Bank of Australia, National Australia Bank and Westpac Banking
Corporation. In 1990, the Commonwealth Government of
Australia announced that it adopted a "four pillars" policy and would reject
any mergers between these four banks. This is long-standing policy rather than
formal regulation, but it reflects the broad political unpopularity of bank
mergers. A number of leading commentators have argued that the "four
pillars" policy is built upon economic fallacies and works against the nation's
better interests. The top four banking groups in Australia
ranked by market capitalisation at share price 24 March 2015:
= Mutual banking in Australia = The Customer Owned Banking Association
is the industry body representing the more than 100 credit unions, building
societies and mutual banks that constitute the Australian mutual or
cooperative banking sector. Collectively, Australian customer owned
banking institutions service 4.6 million customers or 'members', with total
assets of over A$85 billion. The ten largest customer owned banking
institutions in Australia are: Heritage Bank is Australia's largest
customer-owned bank, having changed its name from Heritage Building Society in
December 2011. A number of credit unions and building societies changed their
business names to include the word 'bank', to overcome adverse perceptions
of smaller deposit-taking entities. For example, in September 2011 bankmecu was
announced as Australia's first customer-owned bank.
Three teachers' credit unions have become known as 'banks'; namely, QT
Mutual Bank, Victoria Teachers Mutual Bank, and Teachers Mutual Bank Limited.
The Police & Nurses' Credit Union began trading as P&N Bank in March 2013, and
some credit unions are electing to use 'mutual banking' as a business tagline,
rather than as a business name, as they do not meet the criteria to be called a
'bank'. = Other retail banks =
Competitors to the 'big four' banks include smaller and often regional
banks, including the Bendigo and Adelaide Bank, Suncorp-Metway, the Bank
of Queensland and ME Bank. Other banks, and Bankwest are owned subsidiaries of
the big four. = Foreign banks =
Foreign banks wishing to carry on a banking business in Australia must
obtain a banking authority issued by APRA under the Banking Act, either to
operate as a wholesale bank through an Australian branch or to conduct business
through an Australian-incorporated subsidiary.
Foreign banks which do not wish to obtain a banking authority in Australia
may operate a representative office in Australia for liaison purposes, but the
activities of that office will be restricted.
According to the Foreign Investment Review Board, foreign investment in the
Australian banking sector needs to be consistent with the Banking Act, the
Financial Sector Act 1998 and banking policy, including prudential
requirements. Any proposed foreign takeover or acquisition of an Australian
bank will be considered on a case-by-case basis and judged on its
merits. There are a number of foreign subsidiary
banks, however only a few have a retail banking presence; HSBC Bank Australia,
Bank of Cyprus Australia Limited, Beirut Hellenic Bank and Citibank Australia
have a small number of branches. Foreign banks have a more significant
presence in the Australian merchant banking sector.
Regulation Australia's banking regulation is
extensive and detailed. It is split mainly between the Australian Prudential
Regulation Authority and Australian Securities and Investments Commission.
APRA is responsible for the licensing and prudential supervision of Authorised
Deposit-Taking Institution, life and general insurance companies and
superannuation funds. APRA has issued capital adequacy guidelines for banks
which are consistent with the Basel II guidelines. All financial institutions
regulated by APRA are required to report on a periodic basis to APRA. Certain
financial intermediaries, such as investment banks are neither licensed
nor regulated under the Banking Act and are not subject to the prudential
supervision of APRA. They may be required to obtain licences under the
Corporations Act 2001 or other Commonwealth or State legislation,
depending on the nature of their business activities in Australia.
ASIC has responsibility for market integrity and consumer protection and
the regulation of certain financial institutions. However, ASIC does not
actually investigate any issues or propose any regulations that concern
consumer protection, this authority is delegated to the Australian Competition
and Consumer Commission. Banks are also subject to obligations
under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 as
"reporting entities". They are required to identify and monitor customers using
a risk-based approach, develop and maintain a compliance program, and
report to Australian Transaction Reports and Analysis Centre suspicious matters
and certain cash transactions and file annual compliance reports.
See also MyState Limited
Economy of Australia Financial system in Australia
List of banks in Australia Timeline of banking in Western Australia
References External links
Australia Banking Information Australia's Banking History, ABC